Between the security and the tax exemption of the Livret A booklet against freedom and the very attractive returns of life insurance, which product to choose to invest your savings in 2019? With 1,700 billion euros invested in France in life insurance, and 280 billion in Livret A, discover the specifics of these two essential booklets.
|A booklet||Life insurance|
|Ceiling||€ 22,950||No ceiling|
|Rate of pay||0.75% fixed until 2020||1.80% net of management fees on average|
|Investment security||State guaranteed||No capital guarantee|
|Taxation||Saving totally tax free||No taxation except redemption and exemption from inheritance tax|
|Accessible investment vehicles||No decision-making power in investing savings|
|Number of booklets authorized per person||One||No number limit|
Nalo offers 4 wallets to customize according to your objectives and your assets:
- Wallet Standard (ETF worldwide)
- Wallet Ecology and Sustainable Development (ETF having ecologically and socially responsible practices)
- Wallet ”Without real estate” (allocation excluding investments in real estate
- Wallet ”Complementary to the PEA” (allocation excluding investments in real estate
What is a Livret A?
Booklet A is a regulated and remunerated savings product, which means that the French State fixes all the parameters of this booklet: its rate of remuneration, its ceiling, its conditions of access, its functioning …
- The Livret A has the big advantage of being free of charge, tax free, and allow a availability of funds at all times.
- The rate of the Livret A and its ceiling are regularly updated. The profits collected by the State on this booklet are centralized by the Caisse des Dépôts et Consignations (CDC) and are then used to financing of social housing and urban renewal in particular.
A success that never stopsDespite the many alternatives of savings products that are developing (regulated booklets, etc.), the simplicity and the security of Booklet A still make it today preferred means of savings of the French, with nearly 284 billion euros in outstandings in 2018.
What is life insurance?
Life insurance is a way to save medium to long term which allows you to build up or develop capital in order to finance a personal project or prepare the transmission of his heritage while enjoying a advantageous tax system, in particular with regard to succession.
- Life insurance is thus a contract passed between a insurer (CNP Assurances, Axa Assurances, Crédit Agricole Assurances, etc.) and a insured (which is generally an individual) for a period which can be fixed in advance or upon the death of the insured.
- The insurer thus undertakes to pay from the date stipulated in the contract a capital or an annuity to the “beneficiaries” life insurance mentioned in the contract, in exchange for payments from the insured (regular, single, etc.).
Life insurance beneficiary clause The “beneficiary clause“Life insurance is a clause in the contract between the insured and the insurer. It allows the insured to designate one or more persons as beneficiaries of the contract life insurance (generally natural persons, but certain associations of general interest can be designated as beneficiaries of life insurance).
Once the contract has ended, the accumulated capital is returned to the beneficiaries according to the order and the proportions indicated by the insured in the beneficiary clause, and the account is closed.
The beneficiary clause is therefore essential since it guarantees life insurance its very advantageous tax regime in the event of inheritance following the death of the insured. Indeed, without a designated beneficiary, the capital returns to the patrimony of the insured and therefore becomes subject to inheritance tax again.
Life insurance: advantageous taxation The great specificity of life insurance is its very advantageous tax system, in particular at the level of the transfer of capital to life insurance beneficiaries following the death of the insured. The life insurance system makes it possible to do not go through the classic inheritance regime, which requires the heirs to pay very high inheritance tax and thus directly transmit the capital accumulated within the life insurance contract while benefiting from a tax exemption.
Unlike Livret A, for which the subscriber does not have a say in how the money in his savings is invested, life insurance allows the subscriber to choose the investment vehicles he wants based on his risk tolerance and his performance goals. The insured can thus choose to invest their savings in two main families of support: the euro fund and the account units.
- Characteristics of life insurance investment vehicles
- The fund in euros is a guaranteed capital investment vehicle, which enables savings to be available at all times and annual interest to be secured;
- Account units unlike investment vehicles with no capital guarantee, but whose performance potential is much higher than that of the euro fund.
Attention loss of capitalAll the stakes of the life insurance contract management is to find the good balance between risky but profitable investments and secure but low-yielding euro funds.
The units of account are indeed a good way tooptimize performance of their savings, but expose them to a risk of loss of capital which can be dramatic when the sums committed are significant. In the interest of the insured, it is therefore advisable to diversify your investment portfolio, using euro funds as a safety net for their savings.
Life insurance or Booklet A: how to choose?
The Livret A and the life insurance contract allow meet very different needs in terms of return, investment horizon, security and savings plan. Each of these savings products therefore has specificities to take into account when making your choice.
Availability of savings: Livret A or Life insurance?
- Livret A has the big advantage over life insurance to allow availability of savings at any time. The sums deposited on the passbook are thus exempt from tax and available immediately. This characteristic allows the subscriber of the Livret A to use it as a cash fund, benefiting in addition to the remuneration of the savings account.
- Conversely, the partial or total redemption of life insurance (i.e. the withdrawal of all or part of the capital invested in the life insurance contract) is a longer and costly procedure. Indeed, the capital gain and interest are subject to taxation according to a tax regime which varies according to the year of opening of the life insurance contract.
Payments attention Furthermore, if it is possible to carry out payments freely and free of charge as soon as desired on his Livret A, the provision of the life insurance account may, depending on the type of contract, be imposed on regular dates, and the insurer sometimes withdraws a commission on these payments.
The Selectra opinion The Passbook therefore prevails in terms of availability of savings. Without withdrawal fees or taxation of the sums taken from his account, this regulated booklet can indeed be considered as a real paid “financial mattress”, from which it is possible to draw at any time.
Access conditions: Booklet A or Life insurance?
- Livret A and life insurance present few differences regarding the opening conditions. These two savings products are indeed accessible to all adult physical person, and both offer parents the opportunity to subscribe to an account in the name of their minor child.
- The down payment required at opening is relatively low in both cases, regardless of the bank or insurer chosen. The Livret A thus requires an initial deposit of only ten euros, while life insurance is accessible from 50 € or 100 € initial deposit for basic contracts.
The main difference is therefore at the level of number of accounts authorized per subscriber. Indeed, if one can choose to open as many life insurance contracts as desired, which allows for example to open several contracts adapted to their different savings objectives, each natural person has the right to open only one single booklet A.
The Selectra opinion Both savings products have relatively similar access conditions, with fairly low initial deposits (less than a hundred euros). That said, if you can open as many life insurance contracts as you want, the booklet A is limited to one account per person !
Rate of remuneration: Livret A or life insurance?
- The advantages in terms of taxation and guaranteed availability of Livret A funds have their direct counterpart low pay. Indeed, it is currently only 0.75%, rate set by the French State until 2020. The regular revision of the Livret A remuneration rate, calculated according to the development of inflation, also creates a certain uncertainty about the profitability of this booklet in the medium term.
- For life insurance, euro funds, guaranteed in capital, generate higher interest than the Livret A. On the other hand, this interest and gains remain subject, even without total or partial redemption, to social contributions, and in the event of a withdrawal the taxation is complex and depends on the age of the contract and the payments made to it.
- Support in unit of account, more volatile and unsecured in capital, can generate very high interest but also expose to risk of capital loss not negligible.
The Selectra opinion Life insurance is clearly a winner on this point, with a variety of possible investments which allows it to achieve rates of return much higher than those of the Livret A. In return, the capital of life insurance does not benefit from the State guarantee of the Livret A .
Birth of a child: Life insurance or booklet A?
When a child is born, it is quite common among parents or grandparents ofopen a savings account for the newborn, in order to start saving a sum which will be useful to him later, for his studies, his first real estate purchase, etc.
If booklet A may seem to be the easiest solution to implement at first, thelife insurance is a very attractive option. Indeed, in view of thevery long horizon on which savings are looming of a new born (twenty years!), the freedom of life insurance, both in terms of ceilings, number of contracts or investment vehicles is very significant.
What is a “customary present”? The small sums paid regularly by relatives (for example on birthdays) on the life insurance contract are a priori not taxable because they are considered “customary gifts”. To remain in this advantageous framework, the presents of uses must however remain linked to a family event (Christmas parties, passing an exam, birthday, etc.) and not be disproportionate to the income of the person offering.
Finally, an advantage of life insurance over the Livret A in this area is the possibility of setting up a assistant pact associated with the life insurance contract. This document makes it possible in particular to set a minimum age (maximum 25 years) before which the child for whom the contract was opened, will not have not allowed to make withdrawals funds on his life insurance policy or advance requests. The purpose of this pact is to limit errors what could a young adult who had access to his savings too early.
The Selectra opinion Given the very high savings horizon of a newborn, life insurance is more interesting than Livret A for a savings account opened at birth. Other characteristics, in particular the possibility of setting up an assistant pact to protect the savings of the child before he reaches a certain age, also make this means of savings more suitable in this context .
Life insurance or booklet A: balance sheet
Livret A and life insurance are actually savings products complementary. Indeed, if the A booklet can be used to store limited amounts, and to serve thanks to the availability of its capital, of precautionary savings, life insurance is on the other hand the ideal solution for invest large sums over the long or medium term, to prepare for an apartment purchase, retirement, or even plan your estate.