Acceleration of inflation, soaring long-term interest rates, possible Macron tax reform at the start of the school year: the risks weighing on your life insurance contract are real. Le Revenu tells you how to deal with it to save the purchasing power of your savings.
Life insurance raises a lot of concerns. Three risks are confirmed every day a little more: record inflation, the tightening of monetary policy and the unexpected indirect effects of Emmanuel Macron’s fiscal program. Let’s review them.
For each threat, you will discover our advice to deal with it.
The Macron tax reform
Emmanuel Macron has no plans to reform life insurance either civilly or fiscally. The preferred investment of the French will remain little or not taxed and excluding inheritance: on the death of the insured, the capital goes to the beneficiary(ies) designated in the eponymous clause, not to the heir(s) meaning of the Civil Code.
But the reduction in indirect online transmission rights on the program of the re-elected president will impact the preferred placement of the French.
What is the point of investing in life insurance to reduce taxes owed by a nephew, brother or relative with no blood ties to the insured if these are greatly reduced, or even reduced to zero for small amounts?
Our advice for a quiet summer 2022: diversify your tax envelopes. You must have life insurance contracts, but also a securities account, a stock savings plan (PEA), a retirement savings plan (PER), or even a company savings plan (PEE) if you have access to it. Depending on the evolution of your needs and taxation, you will prefer one or the other.
The acceleration of inflation
As of December 31, 2022, holders of traditional life insurance contracts called “in euros” will have more money in their account than at the start of the year, but they will be able to buy fewer goods and services with this sum.
The loss of purchasing power in 2022 will reach 3%, according to Revenue forecasts, i.e. a shortfall of some 39 billion euros (all the same!) for the 18 million holders of life insurance contracts . Small consolation: the other risk-free investments (bank books, home savings) are housed in the same boat.
Our advice for a quiet summer 2022: apply the 60-40 strategy of Le Revenu, ie 60% funds in euros for security and liquidity and 40% funds invested in international equities for performance potential. Such a distribution will protect the purchasing power of your savings and will ensure you a real gain of 2 to 3% per year over time.
Rising interest rates
The money collected by life insurers is 80% invested in bonds. When interest rates rise, as since the beginning of the year (the rate of the ten-year OAT which serves as a benchmark for the market rose in five and a half months from 0.2 to 1.7%), the companies buy titles with better remuneration and they can increase the performance of the contracts for the greater satisfaction of the policyholders. The problem? Less than 10% of the bond portfolio matures each year.
In other words, the impact of the rise in rates on the remuneration of contracts is very slow. In practice, it only makes itself felt after several years. If, in the meantime, new entrants to the savings market are surfing on the rise in long-term interest rates to offer more profitable investments, there is, in the event of a massive withdrawal of old life insurance contracts , a risk of systemic crisis. We are not there. But professionals are already brandishing the threat of an application of the Sapin 2 law which authorizes the macroprudential authority for the supervision of the financial system, the High Council for Financial Stability (HCSF) to suspend withdrawals (redemptions in the jargon) for a maximum of six month.
Our advice for a quiet summer 2022: keep 5-20% cash, depending on your risk profile, to take advantage of opportunities that are sure to arise if long-term interest rates rise further.
Life insurance requires more attention than before. You can count on Le Revenu to sound the alarm when necessary and advise you on the decisions to be made to maximize your earnings and optimize the taxation of your contracts.