Life insurance: will you be prevented from withdrawing your money?


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Facing 2% in Livret A, euro life insurance funds pale in comparison. To prevent savers from selling their assets, it is possible to block redemptions. But in which case?

Via MoneyVox,

In 2021, the average return on euro funds from life insurance contracts is only 1.28%. While the Livret A rate was recently revalued to 2% net as of August 1, savers may want to settle in favor of this more liquid and interest-free investment. Others are concerned about the effects of the Sapin 2 law, which makes it possible to block or delay such operations. If large withdrawals occur, will insurers really prevent some customers from recovering their capital?

Title 2 law allows blocking of life insurance redemptions

Adopted in 2016, the Sapin 2 law made headlines in the financial sector. Its article 21 bis, in particular, raises the concerns of Afer, an association of savers, which then talks about a “socially irresponsible” and “legally questionable” step. This provision aims to allow insurers to limit, suspend or delay the operations of redemption or payment of life insurance contracts. To activate this lever, however, a safeguard is provided: the blocking of Sapin 2 can only be used in exceptional circumstances, echoing the economic crisis of 2008.

According to many financial experts, the fear of using article 21 bis of the Sapin 2 law is unfounded at the moment. Stellane Cohen, President of Altaprofits, explains: “Of course, there is zero risk. If there is an extraordinary situation, HCSF [Haut conseil de stabilité financière, NDLR] there is a possibility to impose some measures. But we are not currently in a serious situation for the stability of the financial system that would explain why the HCSF triggered the Sapin 2 law. In addition, that measure can only be temporary and will be decided within 3 months, renewable once, ie a total of 6 consecutive months of blocking at most.

Also read: Life insurance: the 6 important information to look for in your annual statement

Life insurance contracts are not (yet) affected by mass withdrawals

Currently, companies are not seeing many requests to redeem their life insurance contracts. In contrast, the total collection is positive, which means that savers are depositing more money into their contracts than they are withdrawing. Philippe Crevel, director of the Cercle de l’Epargne, confirms this trend: “At the moment, there is no beginning of risk. We do not see any large flows”.

First of all, it should be noted that the change in the Livret A rate is recent, having only increased to 2% on August 1. But above all, the 1.28% return posted by the contracts of life insurance in 2021 only involves the capital invested in euro funds, these funds with guaranteed capital. Life insurance has another feature, units of account, which are not guaranteed, but can give hope for better profits. Nearly 40% of the payments made since the beginning of 2022 are now directed to this type of investment vehicle, which is largely favored by many incentives from insurers.

What is the return of euro funds in 2022?

The yields of the euro funds are known only a posteriori, ie during the first months of 2023 for the payment paid in 2022. However, we should not expect great performances, but rather an additional which fall in the rates issued. According to Stellane Cohen, the yield could drop to 0.6 or even 0.5%… unless insurers decide to use their cash reserves. In fact, every year, companies set aside part of their profits to distribute them later to their customers, and thus pay off their contracts smoothly. PPB, Provision for profit sharing, may allow some insurers to provide up to 2% return for 2 years.

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