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To maximize the performance of your life insurance, a careful study of the costs of your contract is essential, according to Stellane Cohen, Senior Advisor at Altaprofits. Because, as our columnist illustrates, their weight can be very heavy.
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– Between the different market players, contract costs can range from simple to double!
With payments which amounted to 153.3 billion euros in 2023, according to France Assureurs, thelife insurance remains the preferred investment of the French. The performance of these contracts results not only from good financial management, but also from good cost control. Understanding the structure of these fees, which are complex by nature, in order to be able to minimize them is essential because their impact on long-term savings can be strong. Competition and regulatory authorities have enabled both their decline and greater transparency. However, while vigilance remains essential, costs should not be made the only criterion for selecting a life insurance contract.
Life insurance costs: a complex system aimed at remunerating all stakeholders
Life insurance costs come in several forms, which makes them complex. Let’s start with the costs linked to the contract: among them, there are the one-off costs which will only be taken when an operation is carried out, and the contract management costs which are taken each year from the savings invested in the contract. One-off fees take the form of entry fees, deducted from each payment made on the contract (which can be up to 3%); and arbitrage fees, levied each time the asset allocation is modified (up to 1% of the amount arbitrated, generally capped). Internet contracts have removed these fees, but they still exist on many non-Internet contracts. The annual contract management fees vary depending on the financial support. They mainly range from 0.6% to 1% and can be different for savings invested in fund in euros or in units of account. By using a management mandate, additional fees will be charged to remunerate the financial management of the contract within the framework of the mandate.
Alongside these costs linked to the contract, there are those associated with the funds in which we invest. They are taken directly from the funds, and are visible on the key information document. They depend on the type of investment and are between 0.8 and 3% depending on the funds (excluding real estate). These fees pay for the active management of the fund manager and are set by the management company. On ETFs or trackers, these fees are very low, which makes them successful. It is the accumulation of all these costs which impacts the real return on your savings and which makes the comparison between contracts difficult to understand.
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Differences that are a priori minimal but which weigh heavily on long-term savings
The differences may seem minimal from one contract to another, but on long-term savings, the impact can be significant. To illustrate this, here are two contracts: the first, a traditional contract loaded with average fees (2.5% on payment, 0.5% on arbitration, 0.8% on funds in euros and 0.96% on THE units of account) ; the second, a contract having removed all costs linked to operations and with low management fees (0.6% on funds in euros and units of account (UC)). After 10 years, for 100,000 euros invested initially with a distribution of 50% euros and 50% UC, and with an arbitrage per year of 10,000 euros on the UC, the costs go from simple to double. The second contract saves more than 5,000 euros in costs. A significant difference! The gap widens even further when performance is taken into account.
If costs cannot be the only criterion of choice, more transparency allows an informed selection of quality offers
The development of online life insurance contracts has eliminated a significant number of fees, and made it possible to gain clarity on these deductions. The regulatory framework also played an important role: after the Insurance Distribution Directive (DDA), which aims to protect consumers by guaranteeing better transparency of costs, the Market Agreement of February 2022 required the publication, for each life insurance contract and retirement savings plana standard price transparency document accessible from a public source in order to facilitate the comparison of offers on the market. As for the fees taken on the units of account, the concept of Value for Money, allowing funds to be sorted according to their quality/price ratio, has encouraged management companies and insurers to review their offer, either by reducing fees on certain funds, or by de-listing those deemed too expensive.
Life insurance: the glossary to understand everything
Controlling the costs of your life insurance contract constitutes a lever for optimizing performance. However, it must be kept in mind that the fees pay for contract management and risk coverage by the insurer, financial management by the management companies, wealth advice and support by the distributor. The cheapest life insurance will not systematically be the most efficient! It’s all about the right balance. Isn’t the best contract the one that offers an offer adapted to its objectives, bringing together controlled costs and support in setting it up?
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