life insurance

What is unit-linked life insurance?


Unit-linked (UC) life insurance is a contract that allows you to invest your savings in different financial vehicles. You can diversify your investments and hope for a higher return than on a guaranteed medium, such as the euro fund. In return, you agree to take a risk of capital loss.

What are the benefits of unit-linked life insurance?

As part of a life insurance contract, your savings can be placed on three main types of investment vehicles:

The euro fund: this medium is the choice of security, avoiding any risk of capital loss (excluding management fees). Over a long period, the yield granted may be lower than that observed on unit-linked funds.

The eurocroissance fund: it is a diversified fund, which combines yield prospects and the security of the sums invested. Technically similar to the classic euro fund, the eurocroissance fund is distinguished by the availability of guaranteed capital under certain conditions.

Units of account: these supports are made up of different assets and are subject to fluctuations in the financial markets. This means that the value of your UC investment may go up or down. If they make it possible to hope for a better return, the units of account constitute a higher risk-taking.

The different types of CPU are generally classified according to the support which represents the most important part of its assets.

Conversely, multi-support life insurance offers different supports. Most often, it offers both a euro fund, several unit-linked vehicles and a eurocroissance fund.

This formula allows you to modulate the level of risk you wish to take. You can secure part of your savings in the euro fund and invest the rest in UC to seek better performance.

How does unit-linked support evolve?

Unlike the euro fund, savings invested in units of account are not guaranteed. The value of the CUs you hold may go up or down depending on the evolution of the markets . On the other hand, you always keep the same number of units of account, unless you make a redemption or a new payment.

Example: you invest €1,000 in a unit-linked asset, when its unit value is €100. You therefore hold 10 shares (€1,000/€100).

Let us now imagine two purely indicative scenarios, without taking into account the various costs related to the management of the contract.

1. The value of the unit of account increases to €70: if you redeem, you only get back €700 (100 units x €70). You therefore realize a capital loss of €300 (€1,000 – €700).

2. The value of the unit of account increases to €140: in the event of redemption, you recover €1,400 (100 units x €140). You therefore realize a capital gain of €400 (€1,400 – €1,000).

Good to know: the amount of your gains or losses is effective only when you withdraw (or redeem) your capital from the investment vehicle. Before any redemption operation, the capital gain or loss is said to be “virtual”.

How to manage unit-linked life insurance?

Depending on your investor profile and your knowledge, you mainly have the choice between 2 main management methods:

Piloted management: it allows you to delegate the management of your contract to the insurer. This is a suitable formula if you lack the time or knowledge to do it yourself. Investments are made according to your profile: investment horizon, risk appetite, objective, etc.

Free management: reserved for experienced investors, it allows you to manage your contract on your own. You can choose your units in UC, define the distribution of your capital or even carry out arbitrations.

Note: most often, you also have access to automatic arbitration options to facilitate the management of your contract. For example, the capital gains securitization option makes it possible to pay back into the euro fund the gains generated on unit-linked products.

What are the benefits of unit-linked life insurance?

Unit-linked life insurance has one main advantage: the pursuit of financial performance. Depending on the level of risk of the support, you can aim for potentially high and greater returns than via the euro fund.

In return, unit-linked products expose you to a risk of capital loss. In the event of downward market fluctuations, the value of your units of account may decrease. In other words, it can cause you to lose money.

To limit the risk, it is important to diversify your investments on several supports in units of account. It may also be wise to transfer part of your savings to the euro fund in order to secure it.


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