With 54 million open contracts, life insurance is an investment popular with savers in France. Some have one, others have two or three. And for good reason, life insurance is a great asset management tool that facilitates, thanks to an advantageous tax and financial framework, the transmission of capital, the constitution of additional income and the enhancement of savings.
Here are five reasons why it is sometimes interesting to hold several life contracts.
1) Optimize earnings
The management and distribution policies of insurance companies are very disparate, which implies a strong heterogeneity of their results, whether it is the performance of the fund in euros or that of Sicavs. The yield difference between two funds in euros can represent more than a third of their performance.
For what ? In particular because their composition can be very different from one structure to another. You may have a pocket of euros made up mainly of real estate, another which will favor bonds issued by European States or another, again, which gives pride of place to bonds issued by businesses and promotes equity investment.
With average returns around 1.8% in 2016, according to the French Insurance Federation (FFA), putting all your marbles in a single euro fund can lead to some bitter disappointment.
In addition, insurers do not all offer the same financial products. Some structures offer an opening to external funds, others are confined to in-house funds. SCPIs can also be hosted within the contract, as can trackers to reproduce a stock market index at little cost.
Holding different contracts from different companies therefore gives you a much wider choice in terms of financial management. Finally, the management solutions available to you differ greatly. The majority of contracts offer management under mandate, free management or automated management depending on the level of involvement you wish to have.
But some play the originality card by offering automatic arbitrage options such as, for example, the capping of capital gains (i.e. the automatic reallocation of gains made), progressive investment in the stock market or the implementation of “relative or absolute stop loss” orders (stop losses) which protects your savings in.
2) Spread the risks
Dividing your life insurance contracts between different establishments is necessary so as not to limit the performance of your savings to the results of a single one. A second factor argues more than ever in favor of risk spreading: the historic drop in interest rates, making insurers very sensitive to bond tensions.
Holding several life insurance contracts with very different insurance companies allows you to better protect your savings if one company were to experience difficulties. Life insurance policies have benefited from additional protection since 1999, when they were covered by the Personal Insurance Guarantee Fund (FGAP).
If an insurance company is no longer able to meet its commitments to policyholders, the fund is mobilized, guaranteeing the sums invested up to 70,000 euros per policyholder and per insurer.
By taking out life insurance contracts with various insurance companies, you therefore multiply the number of times the guarantee can apply. Do not harbor any illusions, however, because the fund’s ability to intervene is very limited.
3) Make less taxed withdrawals
The supports available on a life insurance policy all evolve in their own way. A fund in euros allows you to benefit annually from a minimum rate of return, supplemented by profit sharing. It is fully guaranteed in capital and, thanks to the “ratchet” effect, the interest paid each year is definitely yours.
On the contrary, the part of your life insurance savings invested in units of account (in stock market, bond or real estate funds) offers a higher performance potential, but does not have a capital guarantee. Its evolution will therefore be, upwards and downwards, very different from that of the fund in euros. As a reminder, the taxation of redemptions applied to life insurance relates only to the gains made.
Therefore, to optimize future redemptions, it is wise to segment the supports on several life insurance contracts according to their level of risk. The idea is to isolate the fund in euros on the one hand, and the unit-linked part on the other, by placing them on two different contracts.
Thus, in case of withdrawal, you can choose to puncture the least taxed contract. If the gain on the unit-linked contract is greater than that of the contract invested solely in the fund in euros, you will be less taxed by making a partial withdrawal from the latter.
But if the contract consisting solely of the fund in euros earns more than that in units of account, you will be less taxed by making withdrawals from it. A major advantage!
4) Adapt the investment to the beneficiaries
Investing your savings in one and the same life insurance contract is not always suitable for your beneficiaries. Opening a different life insurance policy for each of them is a way of adapting management to their specific needs.
This requires keeping in mind the destination of the funds to optimize management and risk taking. Thus, depending on the age of the beneficiary and his sensitivity to risk, the financial distribution of the contract may change.
The disbursement of capital will be more easily customizable and more flexible. For the sake of discretion, you may prefer to isolate some of the beneficiaries on a separate contract.
