Life insurance: the stock market to boost the performance of your contract

According to FFA figures, 80% of the €1536 billion invested in life insurance by the French at the end of 2016 was invested in euro funds. With the disappointing returns we know (1.80% on average for 2016 and at best in 2017)

However, limited risk-taking could improve the profitability of the French’s preferred investment.

A necessary risk taking

It is well known that most French savers prefer the security and (now ridiculously low) return of the Livret A passbook savings account to more profitable investments, as long as they involve the least risk. For them, a stock exchange-based investment is often unthinkable..

And yet, even with euro funds, the saver, often unaware of it, sees part of the money invested (generally 5 to 10% depending on the managers) directed towards shares of listed companies.

Compensating for the decline in euro funds

One can imagine the amazement of some savers as they read these lines… But how could they have imagined that the best euro funds could still serve a return of between 2.50% and 3% in 2016, when bond yields have been falling steadily for years?

Of course, insurers still have “old” bonds in their portfolios with higher yields. Of course, the reserves built up by the insurer during the good years have enabled him to round off the yield served. But we too often forget that a significant part of the remuneration paid results from the capital invested on the stock market by the insurer.

How can we distribute 2.5 or 3% per year to investors when bonds yield only 0.10, 0.30 or even 0.50% (as they did for a long time in 2016)?

But today, with very low rates, how can insurers continue to remunerate policyholders when the bonds they buy bring them almost nothing? That is the problem they face.

In addition, net inflows (the balance between money received and money disbursed by life insurers) are decreasing over the months. If the collection becomes negative, insurers will have to sell a portion of their bonds to reimburse their insureds. And if bond rates rise, this operation will be at a loss since a rise in the bond rate would be to the detriment of the price of old bonds, which, in this case, see their price fall..

When you understand this mechanism, you are not surprised by the provision of the “Sapin 2” law, which allows contracts to be “frozen”..

There is therefore only one solution: go to the unit-linked side.

Opt for units of account

Indeed, introducing a limited share of risk by converting your single-media contract into a multi-media contract has two advantages:

  • boosts the return on your contract by taking advantage of the current good stock market trend;
  • allows you to diversify your investments;

What can you do when you don’t know anything?

Investors who have understood that euro funds no longer represent the future of life insurance and who would be tempted by the dynamism of the financial markets often wonder: what should we do when we do not have the knowledge necessary to manage our policy?

Solutions exist that even allow lay people to access these markets despite everything.

Some important points:

  • Choose a multi-media contract with profiled management in which the management of your assets is entrusted to a financial professional who will select for you supports corresponding to your investor profile. By investing 15 to 20% of your available assets in such vehicles, your risk will be limited. These contracts also offer arbitrage and automatic fund allocation options to limit the risk of loss and secure the gains obtained on the “euro fund”.
  • Avoid entry-level contracts that have few opportunities to diversify media. Banks’ funds are often too limited and moreover only to “in-house” equity funds. Sometimes it is better to buy back these underperforming contracts and reinvest in contracts with no entry fees and low management fees that are accessible to everyone on the Internet.
  • A multi-fund contract must offer at least 2 funds in euros and at least 10 to 15 funds to invest in French and European equities, but also American, Chinese, Indian, etc.

Sources and information:

  • https://www.cieleden.com/;>
  • http://www.ffa-assurance.fr/.

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