Theatlife insurance is a great tool to invest VERY easily and I will present it to you in more detail so that you can understand it.
Indeed, when it comes to life insurance, euro funds are associated with it. However, you do not have to invest in a euro fund, especially since today they bring in around 1% per year, while a life insurance can earn you up to 8 %.
I will also come back to its taxation and its small flaws. Finally, as with the PEA, I will offer you 2 investment strategies with a list of promising life insurance policies.
By the end of the article, I want you to understand how life insurance works and get started. You will also find referral bonuses if you want to take action.
Disclaimer: With life insurance, you invest in financial tools that carry the risk of capital loss. Be careful not to invest the money you need to live. I invite you to read my article on precautionary savings before investing.
What is life insurance?
A life insurance is a savings contract between you and an insurer. You entrust your money to an insurer for a defined period or for life. This money is invested according to the terms agreed between you and your insurer divided between euro funds (low-yield secure fund) and units of account.
There are 3 types of insurance:
- life insurance
- death insurance
- a mix of both
Life insurance is an investment tool, the contract is for you during your lifetime.
Death insurance is a guarantee for your loved ones in the event you die. It is used for inheritance, because life insurance is interesting on this point as we will see a little later.
What is a unit of account?
If you are interested in life insurance, this term is familiar everywhere. This is a generic term for different types of investments :
- Real estate through SCPI
- Raw materials (gold, oil, etc.)
- Or a mixture of it all
As a reminder, a bond is a corporate or government debt. A bond has an expected repayment date and an interest rate.
For its part, a SCPI is a Civil Company in Real Estate Investment. SCPI is a form of property management company. An investor who buys shares in this company will receive a portion of the rents received by the SCPI.
Managed management vs free management
There are two main classes of life insurance, managed management and open management.
Having managed life insurance simply means that you delegate the choice of your investments. When you open your insurance, you define the overall strategy for your investment.
The company or the person in charge of managed management will choose the financial instruments suited to this strategy. The downside to this approach is that it comes with additional costs.
In free management, you have to make your investment choices for yourself. You keep costs down, but you are responsible for investing the money you put into your life insurance. It takes more knowledge.
Life insurance: a sector undergoing a revolution
For a very long time, life insurance had changed very little. Life insurance was dominated by traditional banks and insurers who were quick to charge high rates. But for more than 10 years, online banks and then fintechs have come to kick in the anthill.
The appearance of online banks helped reduce the cost of life insurance for the first time, most of them no longer offering entry fees.
In recent years, a new type of player has entered this market: fintechs. It uses technology and ETFs (a bit lower recall) to break prices and offers a more interesting user experience to investors. Depending on your objective and your risk tolerance, it offers you investment profiles that may suit you.
Small summary of the average costs, for life insurance under managed management, according to the players:
- Traditional banks: 2% on entry then 3% per year
- Online banks: 0 % at entry then 3% per year
- FinTechs: 0 % at entry then 1,5 % per year
Among these new players we find Yomoni, Nalo and WeSave.
Reminder on ETFs
As a reminder, ETFs are funds that track an index. For example, for an ETF replicating the CAC 40, if the CAC40 is made up of 10% LVMH, 5% Total, 5% Sanofi, and the fund will contain exactly 10% LVMH, 5% Total, 5% by Sanofi. As the management of its funds is particularly simple, the fees are relatively low (0.1% to 0.4% per year).
Advantages and disadvantages of life insurance
Life insurance has a number of advantages. The biggest of these benefits is the ease with which you can invest. However, all is not rosy, life insurance does come with some flaws.
Investing has never been easier
If you decide to invest in managed management, you entrust your capital to a fund manager who will make the investments for him. All the investor needs to do is set up a direct deposit. He then has nothing more to do. Each month, the insurer will withdraw the agreed amount and invest it automatically.
As long as you keep your open life insurance, you have absolutely nothing to do.
The weak point of this approach: managed management generates additional costs. However, today there are affordable managed management solutions thanks to fintechs.
A fine choice of risk level
Life insurance has since made it possible to define the desired level of risk in the context of the life insurance contract. It is also possible to invest in:
- secure euro funds, but with low returns
- more profitable units of account, but also more risky.
- a mixture of both
For example, Yomoni offers 10 investment profiles ranging from the most secure consisting of 100% euro funds, to the most aggressive consisting of 100% equity.
Here are the results between 2016 and 2020:
Beware of management fees
The first black point with life insurance is the fees applied. A managed life insurance policy, we thus accumulate three different costs:
- Custody costs for life insurance, from 0.5% to 0.75% per year
- Management fees, from 0.2% to 1% per year
- Unit-linked fees, from 0.2% to 2.5% per year
A life insurance with free management, we only accumulate 2 types of costs:
- Custody costs for life insurance, from 0.5% to 0.75% per year
- Unit-linked fees, from 0.2% to 2.5% per year
In a traditional or online bank, the fees can be more than 3.5% per year. Fintechs offer fees of 1% to 1.8%, which makes them particularly competitive.
You will understand, with all these costs, if your goal is to invest only in the stock market through life insurance, this is probably not the right tool. You should turn to the PEA which has very very little cost.
The unlikely event of blocking withdrawals
The Sapin 2 law authorizes the High Committee for Financial Security to take exceptional measures in the event of a serious financial crisis. This committee can thus impose, on a life insurance company, the implementation of temporary measures:
- Limit deposits to euro funds in your contract
- Suspend or restrict withdrawals from your life insurance
- Limit the distribution of dividends
In theory, you could end up with your life insurance stuck, that doesn't mean you can't get your money back. But we must be aware of this and not put all these eggs in one basket!
Taxation of life insurance
Life insurance has a slightly more complex taxation than that of the PEA, I will discuss the taxation in the event of withdrawal and in the event of succession for a life insurance opened today.
For payments made before 09/17/2019, I let you consult this article. As with the PEA, you are only taxed on exit, which is a significant advantage.
One exception though: Each year, the interest earned through the portion of your life insurance in euro funds is subject to social security contributions of 17.2%. The insurer is responsible for managing the declaration of these withdrawals.
Why is being taxed at the exit more advantageous?
Let's take two simple examples to understand, we invest € 10,000 for 10 years at 10% gross interest:
- In the first case, we are taxed at the exit of 30%
- In the second case, we are taxed each year by 30%
Finally, we will end up at € 21,115.90 in the first case and € 19,672 in the second case. Either a loss of € 1,483.9 in the case of annual taxation. This is the great strength of compound interest that we have developed in one of my articles.
If you want the details of the calculations, see the following article.
Taxation in case of withdrawal before 8 years
Partial withdrawal of your insurance is quite possible and does not result in the termination of your contract. Before 8 years old, you will be subject to the flat-tax at 30%:
- 12.8% income tax
- 17.2% social security contributions
Taxation in the event of withdrawal after 8 years
This is where things get more interesting (and complex). Each year you have an reduction of € 4,600 on interest withdrawn (€ 9,200 for a married or civil partnership).
Take for example:
- you had deposited € 20,000 in capital 8 years ago
- you now have € 30,000, or € 10,000 of “interest” or 1/3
- you can then withdraw € 13,800 without paying tax per year
- € 9,200 in capital (2/3)
- € 4,600 interest (1/3)
Beyond this reduction amount, you will be taxed at 24.70% for the first € 150,000 of capital:
- 7.5% income tax
- 17.2% social security contributions
After these € 150,000, you will be taxed at 30%.
You immediately understand that you can optimize your taxation using your € 4,600 “interest” allowance per year.
Taxation of inheritance
Life insurance is widely used to pass on wealth.
For all open contracts and sums brought in before 70 years, know that you can transmit up to 152,500 € per beneficiary, without rights of succession (per child for example).
Between 152,500 and 852,500 euros, there is a discharge rate of 20%, and 31.25% beyond. Interest is taken into account in these amounts.
For all open contracts and sums brought in after 70 years, inheritance tax applies after a reduction of € 30,500 on the amounts invested. The interest obtained is not subject to inheritance tax, but only to social security contributions.
Exit in the form of a life annuity
I mention it for completeness, but I do not wish to detail it. It is possible to take out life insurance in the form of an annuity. Its main advantage lies in the tax deduction on the annuity depending on your age (up to 70% after 70) which can be advantageous for large life insurance.
Choose your life insurance according to your strategy
Life insurance can have several objectives, it allows, for example, to place part of your precautionary savings with a return higher than the livret A (0.5% in 2020), this will be the first strategy that we will analyze.
But life insurance can also be interesting for long-term investing, its big advantage is that this investment can be passive.
Strategy 1: Your precautionary savings
I wrote an article on the subject of precautionary savings before, so read the article if you want to find the full explanation.
Precautionary savings is the amount you keep in the event of a hard blow (accident, job loss, etc.). I encourage you to keep the equivalent of 4 and 6 months of spending.
You should not invest mostly in stocks, because there is no question of losing 20% in a stock market crash. It is precisely during these times that you are most likely to lose your job!
The strategy to adopt
We must therefore choose a fairly low risk. For this, it is important to keep about 2 months of expenditure on a book, available immediately (Livret A, Livret Développement Durable).
But, for the rest, nothing prevents you from placing your precautionary savings to have a minimum return. And life insurance is perfect for that!
You can obmaintain a yield between 3% and 4% per year with low risk. For this, you should invest in a life insurance with relatively little risk, for example, with 30% shares and as many bonds.
For this type of investment, placement on more suitable is Yomoni, which offers attractive fees in managed management for the least risky profiles. For example :
- The P3 profile (20% share and 20% bond) has a 1% annual fee.
- The P4 profile (30% equity and 30% bond) has 1.2% annual fees.
Why Yomoni? They are the only ones to present lower fees for low risk profiles.
Personally, I have life insurance with the P4 profile at Yomoni for my precautionary savings.
Strategy 2: To invest for the long term
Life insurance is a tool simple and affordable. If you want to invest for the long term without having to think about more than a few minutes in total, then you should be interested. On the other hand, the counterpart are the management fees which will reduce your performance.
Besides, if you want to be 100% invested in stocks, life insurance is not the best investment, even if it remains the simplest.
You should look to the PEA, which costs very little. I have written a full article on the Action Savings Plan, in which I give examples of investments.
Long-term investing reminders
When I talk about long-term investment, the minimum is 5 years and I advise you at least 10 years. Indeed, investing in the short term in risky profiles is truly… risky.
You will say to me “yes, it is obvious”, but we must be fully aware of it. If you need this money after 2 years, it may have lost 30% of its value.
Over a long period, the risk is much lower and on average your life insurance will increase by 5% to 8% per year (or from 62% to more than 115% in 10 years).
Small anecdote: I had the good taste to invest in life insurance while waiting for a real estate investment. Do you know when the opening took place? On March 16, 2020, the day the confinement began, the stock markets unscrewed for several weeks.
Result: Several thousand euros lost. The story ends well, because if you cancel your life insurance within 30 days, you benefit from the waiver period. And lThe insurer reimburses us FULL of the amount paid.
Long term strategy
With a long-term strategy, you can afford to have a lot of risky, but more profitable assets. Simply put, that means more action.
As part of a long-term investment, there are more choices available to you.
But from my point of view, the solutions that Yomoni and Nalo offer for me the best investment solutions because, they allow to invest with a larger portion of bonds and less euro fund.
The interesting profiles of Yomoni are profiles P6, P7 or P8 Or on Nalo you can choose between 50 and 70% shares. I repeat if you want to invest 100% in stocks, life insurance is not optimal, which is why I suggest using the profiles that allow you to hold bonds.
Nalo offers other solutions that make it possible, for example, to invest in socially responsible companies or renewable energies. Nalo also allows you to predict the evolution of your risk profile to secure your gains with a gradual reduction in the share of shares.
Note that the costs will be similar for all fintechs, for example:
- Yomoni: 1.60% fresh
- Nalo: 1.65% fee
- WeSave: 1.5% fee
Limit costs with free management
To limit costs, you can also invest through self-managed life insurance. For example, Boursorama or Bourse Direct offer fees between 0.6% and 0.75% under free management. Add to that the fees of the funds or ETFs that you will be using, if you decide to use them.
However, it is up to you to invest. The easiest and cheapest is to invest in equity ETFs and bond ETFs. I can't give you a list, because each life insurance gives access to different ETFs.
Bonuses & Sponsorships
The links above are referral links, through these links you can get:
- On Yomoni you can get between 50 € and 350 € (between € 50 and € 150 for me) from € 5,000 investment
- For Nalo, you will have 3 months of free management (and me too)
I am not allowed to put the Boursorama sponsorship link directly, but I invite you to request it. You can get between 80 € and 130 € for opening an account and 50 € for opening a life insurance policy.
No sponsorship offer is available on Bourse Direct to take advantage of their free management. Mbut offers exist for you when you open life insurance with a minimum 20% unit of account (120 € for € 3,000 to € 10,000 and € 170 beyond).
As we have seen in this article, life insurance is versatile, it allows you to place your precautionary savings at a return much higher than the Livret A.
In addition to being the easiest way to make a long-term investment, it offers attractive tax advantages after 8 years of ownership. And finally, it has important assets for transmitting heritage in the case of an inheritance.
In turn, do you have a specific strategy with your life insurance? If you don't have life insurance, what's holding you back?
Do not forget to partager this articleto your family and friends to help them discover the benefits of life insurance!
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