Life insurance: everything you need to know before investing

Life insurance is undoubtedly the preferred investment of the French, with more than 2,000 billion euros in assets under management. This savings product, often misunderstood, plays a crucial role in building and managing wealth. Whether for saving, capitalizing, or transferring assets, life insurance offers numerous tax advantages and great investment flexibility. Discover in this article everything you need to know to fully understand and optimize this essential investment.

Table of Contents

• What is life insurance?
• The key advantages of life insurance
• Understand the main investment vehicles
• How to invest well in life insurance?
• Taxation and transmission: major assets
• Pitfalls and errors to avoid
• Demystifying common misconceptions
• The future of life insurance
• Tips for investing successfully

What is life insurance?

Life insurance is above all a savings and transmission contract. Contrary to popular belief, it is not a simple death insurance or a locked-in product. It is a flexible vehicle that allows:

• To pay in free sums, whenever you want,
• To grow your money without being taxed as long as nothing is withdrawn,
• To recover its funds at any time,
• And in case of death, to transfer its capital to its beneficiaries with advantageous taxation.

This dual savings/transfer function explains its immense success with savers.

The key advantages of life insurance

Advantageous taxation

The taxation of life insurance is one of its main advantages. Gains made within the contract are not taxed as long as they remain invested. Upon withdrawal, only the portion of interest in the amount withdrawn is taxed. After eight years of holding, an annual allowance applies (€9,200 for a couple, €4,600 for a single person), allowing a portion of the gains to be withdrawn completely exempt from income tax, excluding social security contributions.

A wide diversity of investments

Life insurance offers a wide range of investment options suitable for all profiles:

• Capitalization fund : capital guaranteed, stable return around 2 to 3.5% per year, ideal for securing part of the savings.
• Units of account : stocks, bonds, ETFs, bond funds, unit-linked funds, SCPI (paper real estate), private equity, etc.

This diversity allows for the construction of a personalized allocation based on your time horizon, objectives, and risk tolerance.

Liquidity and flexibility

Contrary to popular belief, money invested in life insurance is not locked in. The sums can be withdrawn at any time, with often very short availability periods (a few working days). In addition, it is possible to make programmed payments, to switch between investment options, or to open multiple contracts depending on your plans.

Understand the main investment vehicles

The euro fund

The euro fund is a unique support within the French system. It guarantees the invested capital and offers an annual return. The insurer invests this money mainly in government bonds (around 60%), but also in stocks, real estate, and private equity, which helps to smooth out performance over the long term. It is the ultimate security support, complementing the Livret A savings account.

Bond unit-linked funds

These funds invest in a diversified portfolio of corporate bonds with a known maturity date in advance (example: 2028 fund). The objective is to obtain an attractive average return (4.5 to 5.5% net), with moderate risk. The key is to hold the fund until its maturity, as the value can fluctuate depending on interest rate movements.

ETFs (Exchange Traded Funds)

ETFs are listed index funds that replicate the performance of a stock or bond index. They allow for low-cost passive management, offering broad diversification. For example, an MSCI World ETF allows investment in major global stocks. Bond ETFs cover various segments, with varying risks and returns depending on the quality of issuers and the duration of borrowings.

SCPIs (Sociétés Civiles de Placement Immobilier)

The SCPI allow investment in commercial or residential real estate through a fund. They generate regular income from rents received, with potential for unit price appreciation. Investing through life insurance provides liquidity often better than direct purchase and benefits from the contract's advantageous taxation. Net returns generally reach between 4 and 7%, depending on the SCPI and the context.

Private Equity (unlisted investment capital)

Private equity consists of investing in SMEs not listed on the stock exchange, through specialized funds. It is a long-term investment (8 to 10 years), less liquid and riskier, but historically very profitable (annual returns around 13% to 14% over ten years). In life insurance, these funds are accessible with the liquidity provided by the insurer, which facilitates their holding for individuals.

How to invest well in life insurance?

Define one's objectives and horizon

Before investing, it is essential to clearly determine your projects: real estate purchase, retirement preparation, financing of studies, or building capital in the medium/long term. Depending on the horizon and risk tolerance, the allocation between euro funds and unit-linked funds should be adapted.

Choose a suitable contract

The main criteria for selecting a good life insurance contract are:

• Fees : favor a contract with low management fees (ideally less than 0.5% per year) and limit entry, exit, or switching fees.
• The quality and diversity of the underlying assets : have access to a wide range of high-performing funds, including the best SCPIs, ETFs, dated funds, etc.
• Customer service : comprehensive and responsive support is essential, particularly for administrative management and drafting the beneficiary clause.

Build a coherent allocation

For a beginner investor, it is recommended to:

• Start by securing a portion with a euro fund,
• Invest progressively in dynamic investments through scheduled payments,
• Avoid investing a large sum all at once in risky assets to limit the impact of fluctuations,
• Rebalance your portfolio regularly according to market developments and your objectives.

Taxation and transmission: major assets

The taxation of withdrawals

Withdrawn gains are taxed only on the interest portion of the withdrawn amount, which considerably reduces taxation. After eight years, annual allowances allow a significant portion of gains to be withdrawn without income tax; only social security contributions remain due.

Optimized transmission

Life insurance allows you to freely designate beneficiaries of the capital outside of traditional inheritance, with an allowance of €152,500 per beneficiary for payments made before age 70. This mechanism considerably reduces inheritance taxes, which can reach 40% in the traditional framework. Beyond this allowance, a reduced rate (20% up to €700,000) applies, which is much lower than the traditional inheritance scale.

It is important to properly draft the beneficiary clause, possibly with the help of a professional, to avoid any ambiguity or loss of tax benefits.

Pitfalls and errors to avoid

• Choose a contract with high fees : this can eat up a significant portion of long-term gains.
• Invest a large sum all at once in risky assets : it is better to spread out investments to limit the risk of an immediate drop.
• Ignore the beneficiary clause or write it incompletely, which can lead to complicated transmission.
• Not regularly monitoring your contract : it is important to have an annual review to adjust your allocation according to market and objective evolution.

Demystifying common misconceptions

The money is not locked in

Contrary to some beliefs, funds placed in life insurance remain available at any time, with generally short withdrawal periods. Some contracts even offer instant redemptions up to a certain amount.

The insurer's security

In case of the insurer's bankruptcy, a guarantee mechanism protects policyholders up to €70,000 per insurer. It is advisable to choose solid insurers with good solvency ratios.

The state cannot seize your savings freely

The law provides for exceptional measures in case of a major crisis, but they are rare and temporary. In general, your savings are protected.

The future of life insurance

The life insurance model remains solid and adapted to savers' expectations: simplicity, flexibility, advantageous taxation, and diversity of investment options. Innovations focus on the democratization of more efficient products (dated funds, ETFs, private equity), the reduction of fees, and the improvement of customer service, particularly through digital channels.

Tips for investing successfully

The best advice for successful life insurance investment is to adopt a methodical and patient approach:

• Clearly define your objectives and your horizon,
• Build an allocation adapted to your profile,
• Avoid checking your contract too frequently so as not to give in to emotion,
• Automate your payments and exchanges to stay on track,
• Conduct an annual review to adjust your strategy if necessary.

Investing in life insurance is a long-term journey, where consistency and discipline are the keys to success.