Costs, contract flexibility, long-term performance, types of management available: not all life insurance contracts are created equal. Here are the 10 mistakes to avoid so as not to be trapped with a second-rate contract.
Nearly 25 million American people hold a life insurance contract. And, with the fall in the return on regulated savings accounts (1.75% since 02/01/2013), this investment could pick up in 2013. Here are the 10 mistakes to avoid so as not to be trapped with a second-hand contract order.
1- Subscribe blindly.
The subprime crisis has shown that there are no unsinkable financial institutions. It is important to find out about the solidity of the company to which you are going to entrust your savings.
2- Ignore retroactive rates of return.
In 2012, the majority of funds in euros delivered around 2.8% with a peak of 3.5%/4% for the best products. Before opting for a contract, examine its profitability over the medium term (3 years) by ensuring that it is regular and in line with the morphology of the market. Prefer established contracts.
3- Lack of vigilance over fees.
A life insurance policy entails various charges: entry fees, management fees, arbitration costs (for multi-support products), and exit fees. Boycott contracts with membership fees exceeding 5% and charging more than 1% for management. Many products offer a quota of free annual arbitration, check the number of additional arbitration or that of the packages offered.
4- Fall into a mouse contract.
A good contract must open the choice between a single premium, free payments, or scheduled payments and not be limited to a fund in euros.
5- Drafting a beneficiary clause too quickly.
Its drafting is sometimes neglected because the initial amount is low. But over time, it will round out… Generally, notaries advise to remain discreet vis-à-vis the designated beneficiaries and to think about updating this clause according to family events (births, divorce, etc.) regardless of the amount of capital constituted.
6- Stick to a narrow investment choice.
Prefer multi-media products. They make it possible to invest both in a fund in euros and equity, bond, or profiled funds. Check that the range is wide and that it corresponds to your expectations.
7- Be fooled by management profiles.
Make sure you specify what they correspond to because they are not homogeneous from one company to another. Generally, insurers offer 3 types of management: cautious, dynamic, and offensive.
8- If you are ready to take certain risks (dynamic management, offensive)
Your contract should have in particular an option of “securing” capital gains: thus, as soon as your gains reach a certain amount, the interests will be moved to one or more secure media such as the euro fund.
9- Subscribe to a contract without online management.
Some insurers do not allow this steering, which is essential because of the autonomy it confers, especially for an active investor. Management via the Internet makes it possible to carry out the most common management acts such as online arbitration.
10- Do not inquire about the conditions of the “advances”.
An advance can be likened to a credit system allowing you to recover a fraction of the sums invested in your contract without having to break it. This is a very useful option if your contract is less than 8 years old, the period required to benefit from low taxation. Find out about the price of these advances. Their cost should never exceed 0.5%, the good average being 0.2-0.3%.
The favorite investment of the American for more than 30 years could well lose its interest… Indeed, two major risks weigh on it.
One of the favorite placements of the American for more than 3 years would have been leaders in the wing. Indeed, two major risks would weigh on him.
The first risk is at the level of the low-interest rates that accompany life insurance. These particularly low rates moderate the expected returns from life insurance for contracts in euros. Indeed, we should expect rates to hover around 1% to 1.5%.
And if the State decides to tax life insurance…
The second risk comes from taxation… This liquid investment with guaranteed capital at each maturity may well end up interesting the State, which could one day decide to tax the life insurance savings.
So what should be done? The specialist interviewed by Challenges.fr advises seeking the performance of the return thanks to the diversification of the investment. He, therefore, suggests turning to unit-linked contracts rather than contracts in euros. If they are riskier, the return can still be more interesting…
And diversification can ultimately also limit the risks: if one of the products on which your money is placed fails, the others can compensate…