Life insurance: definition
Life insurance works much like a savings account. When you sign a contract, you deposit money into it. This money will earn interest each year, depending on the investments you choose to make. A life insurance contract is, by definition, a "life insurance contract". In case of death, it allows you to pass on a capital to one or more beneficiaries of your choice.
What are the types of life insurance contracts? Single support or multi support
There are 2 types of life insurance contracts:
The single-support: these life insurance contracts are secure investment supports that only invest in a euro fund. Each year, the sums you pay in will generate interest, like a regular savings account. The interest rates are not revolutionary, however, this type of contract normally has the advantage of a guaranteed capital. They are becoming increasingly rare.
For several years, with low interest rates on the markets and then the return of inflation, a large part of insurers no longer wish to offer these contracts. Investment in the euro funds is, in most cases, conditioned on an investment in units of account. Some insurers no longer offer a total capital guarantee on euro funds, reserving the right to charge management fees beyond the capital paid in by the saver.
The "multi-support" contracts help to energize savings. Part of the deposited funds are placed on secure funds (on the euro funds mentioned above), and another part is invested in the financial markets through "units of account" (called UC in jargon).
While the prospects for return can be more interesting, these placements are also riskier since neither the interest nor the capital can be guaranteed. New available supports, the "Eurogrowth Funds", allow under certain conditions to benefit from the return prospects of financial products while guaranteeing part or all of the capital.
Finally, the Unit of Account contracts are supports for which 100% of the payments made are placed on the financial markets.
Unit-linked insurance vehicles are financial investment supports (invested in stocks, bonds, company shares, FCPR shares, SCPI shares...). These are what savers use to invest in financial products. Each insurer offers a different range, which can range from a few unit-linked insurance vehicles to several thousand.
Each UL is representative of a single asset. Therefore, it's easy to know in which financial instrument one is investing. These can be UCITS (very traditional investment funds in the form of SICAVs or FCPs), but also real estate funds such as SCPIs, SCIs or OPCI, non-listed funds like FCPRs, and even sometimes direct shares, then named "pure equity". Each unit-linked insurance vehicle has its own legal documentation: investment strategy, fees, risk... It is essential to dissect this before investing to fully understand what is at stake.
In absolute terms, life insurance allows access to a much larger array of supports than the Equity Savings Plan (PEA), since it is possible to invest in bond investments, structured funds, international investments, etc.
It should be noted that investment in unit-linked insurance is subject to a risk of partial or total loss of the invested capital: these are financial products subject to stock market fluctuations, both upward and downward. It's better to diversify asset classes.
When you subscribe to a multi-support life insurance contract, you can invest in both a secure euro fund and unit-linked products. However, it should be noted that some contracts no longer offer euro funds.
With these contracts, the saver has the opportunity to manage their savings themselves, choosing in which unit-linked products they wish to invest from the range offered. This range can be more or less wide depending on the contract, ranging from a few unit-linked products to more than 1000. Unit-linked products represent investment funds; these are often mutual investment companies (SICAV) or mutual funds (FCP), a category of Collective Investment in Transferable Securities (UCITS). Increasingly, one can also find ETFs (or index funds). These investment funds aim to replicate the performance of a particular index, both upwards and downwards (for example, the CAC40). Certain contracts also give access to direct real estate funds (SCPI, OPCI, REITs) or through ETFs specialized in real estate. This type of management is particularly suited to those who wish to invest in financial products while enjoying the advantageous framework of life insurance. It is therefore important to scrutinize the unit-linked offer before subscribing.
The saver can also opt for delegated management. In this case, they entrust the choice of investments to a professional but must choose the type of management they want implemented according to their objectives and risk sensitivity. Insurers typically offer three types of profiles:
• The "cautious" profile, investing mostly in low-risk bond and money market products (but always with the possibility of seeing capital decrease in case of falling values);
• The "balanced" profile, mixing less risky unit-linked products (bond and monetary products) with others offering a higher risk/return ratio (especially shares);
• The "dynamic" profile, investing in shares.
In most cases, the management is common to all investors who have chosen an option. However, some contracts offer innovative proposals : multiple management profiles, thematic investments (innovation, climate change, circular economy, water...).
Lastly, certain higher-end contracts offer mandate management: choice is then entrusted to a professional who will adapt investments according to their client's profile. This management can, for example, be taken care of by a wealth management advisor.
During the lifespan of a contract, it is possible to transfer your savings from one medium to one or several others, or to change account units. This is called "making an arbitrage". Some contracts charge fees on these arbitrages, others do not. Look carefully at the details of the fees before subscribing, based on the movements you plan to make.
Some offers include automatic arbitrage options. In this case, the saver can schedule a sale or a purchase in the event of crossing a certain threshold, both upwards or downwards. Such examples include:
- The securing of capital gains, which generally involves repatriating the perceived gains to a euro fund or less risky assets. This is how the management by the horizon works within pension savings plans (PER), for example,
- The dynamization of capital gains, which conversely involves automatically reinvesting gains on certain supports,
- The stop-loss, which involves selling an account unit when its value falls below a certain threshold to avoid too much loss
- The smoothing of investments, through which the saver can invest progressively,
- The automatic portfolio rebalancing: some account units are automatically sold or bought to always maintain the same proportion of assets in the account unit portfolio.
Multi-support life insurance can offer several types of management:
Free management allows you to choose the units of account in which you will place your money, and when to buy or sell them. This management is available in most contracts. You may also sometimes opt for automatic arbitration: you then schedule purchases or sales according to security thresholds, progressive investment, profit or loss thresholds, for example.
If the goal is to opt for free management, be sure to choose a contract that offers the type of units of account that interest you, and scrutinize annual management fees on UCs as well as any potential constraints (limitations on certain types of supports such as SCPI...).
Profiled management offers automatic distribution of savings according to your risk profile: cautious, balanced or dynamic. The asset allocation is done according to the chosen level of security and performance potential. Until recently, it was common to only have the choice between 3 profiles. Now, some portfolios also focus on certain themes (investment in supports favoring the fight against global warming, responsible investment, 100% ETF investment...).
Finally, with managed management, also called "mandate management", a professional manages your life insurance contract on your behalf according to your constraints and objectives. It is they who will be in charge of selling certain units of account to acquire others to optimize the performance of your contract. This type of management is usually reserved for high-end contracts and generates additional fees. But it allows for customized investment choices.
