- Written by Ludovic Herschlikovitz
As part of a life insurance policy, life insurance policyholders have the choice between euro funds and units of account to invest their savings. If the functioning of funds in euros is simple enough to understand, that of units of account requires more explanations so that savers can make their decision with full knowledge of the facts.
The units of account (UC) of a life insurance contract
In life insurance, savers can invest their money on a fairly wide choice of investment vehicles:
- In the case of a single support contract, savings are exclusively invested in guaranteed investments called “euro funds”.
- For a multi-support contract on the other hand, the insured have the choice between funds in euros and units of account. Guaranteed capital investment is fairly simple to understand since savers have a fairly precise idea of the return, management fees and tax charges when they decide to invest. On the other hand, the functioning of the units of account is not always very clear, especially since the financial supports are very varied.
What are units of account in life insurance?
The units of accounts are financial supports on which savers can invest their money. They can be assets on the stock markets (stocks or bonds) or even real estate investment funds (SCPI, OPCI shares …). The amount invested in this type of support is converted into the number of UA. The guarantee offered by the insurer relates to the number of CPUs and not to their value, which, as a reminder, varies according to the fluctuation of the financial or real estate markets. Savers are thus exposed to a capital loss if the markets fall. This scenario is not likely to arise for contracts in euros since the insurer guarantees the capitalized interest.
(embed) https://www.youtube.com/watch?v=1MM9Q1pKvWA (/ embed) Source: Gan Patrimoine
Unit management fees
Management fees are collected by the insurer each year and in the case of UC contracts, they are deducted from the number of UC held by the insured. As a result, an insured who holds 100 UC will only have 99.10 UC after application of 0.90% management fees. It is important to note that the profitability of a long-term investment may be eroded due to this annual decrease in the number of CUs, although its percentage is low.
In addition, “hidden costs” can also affect the performance of multi-support contracts. It may indeed happen that a part of the savings is invested in supports presenting specific management fees not visible to savers.
Tax rates and social security contributions in force since January 1, 2018
Whatever the medium chosen, the subscriber of a life insurance pays at the exit a tax of 12.8% for a redemption before 8 years and of 7.5% after. For information, this taxation only applies to gains earned by savings since payments made on a contract are not subject to tax. The annual allowances are 4,600 euros for a single person and 9,200 euros for a couple when the contract has been held for more than 8 years.
Unlike social security contributions on the taxable earnings of funds in euros, which are paid year after year, those of UCs are due only when the life insurance contract is redeemed. The rate of these withdrawals is 17.2%.
In short, the units of account are financial supports with a higher yield than funds in euros. By investing in CUs, savers should expect stock market and real estate market fluctuations to affect their capital. Conversely, the yield potential with units of account can be much higher with contracts in UC than on contracts in Euros.
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