What are the figures of life insurance ?
Life insurance is both ordinary and extraordinary, because it is the preferred investment vehicle for the French. A real success with 1,785 billion euros in stock. This can be compared to the stock existing in the matter of Livret A, since there are 444 billion Livret A accounts.
It is both a success, but also a bit of a difficulty in 2020. Because there was a decrease in collection. This decrease represents 7.5 billion euros less in the figures at the end of November 2020, according to the French Federation of Insurers.
We know that there is an excess savings. Because for the same period, French people have saved over 100 billion euros.
Why do we say that life insurance is essential in wealth management ?
It was initially based on euro funds. But euro funds face two major constraints:
- first, a decrease in the yield rate of the underlying of the euro fund. What is the euro fund? Historically, these are French bonds whose profitability has been declining for over 35 years. For more than 6 years now, their profitability has been below 1%, thus a decline in returns. The mechanical effect of the Mark-To-model of the euro fund yields somewhat positive returns, but they are decreasing.
- then, a second point impacting euro funds is regulation. Notably with European solvency regulation 2, which has been in effect since 2016. We realize that today insurers need more and more own funds to hold bonds in their portfolio.
What are the new advantages of life insurance ?
The basic principle of life insurance is the accessibility of savings. This accessibility means that there is no:
- more entry fees,
- more exit fees,
- and 100% of the capital is available before 8 years.
It is often said that the capital is not available before the 8 years of the contract, but that is false.
The life insurance contract also offers a tax system that is very favorable not for the rate but for the basis.
For example, if a policyholder deposits €100 with their insurer and the contract gains 20%. The policyholder’s contract then has a value of €120, and they decide to withdraw 10% of the contract, that is €12.
There is a defined calculation in Article 125-0 A of the General Tax Code, which states that only in the case of a €12 withdrawal (i.e., 10% of the contract), there will only be €1.2 in the tax basis. This has been reinforced since Macron’s reform (the Finance Law for 2018) which established a universal rate (flat tax).
Under the PACTE law, there is a 12.8% income tax, 17.2% social contributions, and 30% tax regardless of the duration of the contract, with a slight advantage of an additional €9,200 exemption after 8 years.
We have restored what was in law; people do not take out life insurance just because of a favorable tax regime; the 30% rate applies from the day after the contribution is made into the contract, whereas previously it was 52%, so a dramatic decrease.
These advantages are reinforced by the PACTE law, which aims to attract savings into the real economy.
Why can life insurance promote the real economy, and thus businesses ?
Because it allows new types of investment vehicles, new investment supports, to be eligible within the contract.
The Macron law of 2015 gave the ability to make eligible within the contract private equity securities, such as FCPAs (Risk Capital Mutual Funds), FCPIs (Professional Investment Funds).
This measure was strengthened with the law of May 2019, which allowed making private equity eligible within the contract via FCPAs and FCPIs up to €100,000 for 10% of savings and beyond €100,000 up to 50% of savings.
The insurer ensures liquidity in case of death, along with other additional benefits not available if investing directly in private equity, making it an important point.
Explanation of partial transfer
The other bonus is the ability to partially transfer your life insurance. Partial transfer is possible within the insurer.
For example, a policyholder has an old contract based solely on euro funds, which we now know is outdated. Life insurance offers this flexibility: you can transfer, upgrade your contract by adding to it without affecting the fiscal integrity of the contract. This avoids making a total withdrawal, thus ending the contract and triggering taxation, and allows opening a new product within a new contract that can access units of account.
The PACTE law does not impose a minimum quota for investment in UC. It is necessary to allocate at least more than 50% to units of account.
Should all contracts be modified into contracts exclusively in units of account ?
It is important to maintain the general approach of life insurance; do not completely discard the principle that there are new practices.
Previously, it was easier to offer life insurance invested in guaranteed funds because there was guaranteed performance, and there was no need for advice.
Today, advice is essential, and wealth management advice is a fundamental driver to support this shift in the management of French people’s savings.
This basic principle is now reflected in the DDA (Directive on Insurance Distribution), which has been regulating since October 2018.
It defines:
– the management reason,
– risk appetite
It assesses the adequacy between the management horizon, risk appetite, and:
- postpones and advises
- follows and modifies within the contract the various units of account to adapt at any time to the situation and the saver’s intention.
Remember that you have the possibility to receive review questionnaires by clicking the button below.
To be notified of new articles, you can register your email address below.
Entraîne-toi avec nos Quiz de révision
Fini les lectures passives. Pour retenir les notions clés du BTS Assurance, teste-toi ! Inscris-toi pour recevoir 1 quiz par jour directement dans ta boîte mail.
