Life Insurance: Euro-Denominated Funds or Unit-Linked Policies?

Life insurance is a very popular savings option among the French, with nearly 40% of households holding a policy. 

On average, they invest 34,000 euros in these policies, divided between euro-denominated funds and unit-linked funds. Although euro-denominated funds are the preferred choice among savers, accounting for 72% of their total assets, unit-linked funds are gaining popularity, rising from 16.8% to 41% of the amounts invested in life insurance over the past 10 years.

Euro-denominated funds offer a capital guarantee, stable returns, and constant liquidity, with an average return of 2.60% in 2023. Unit-linked funds, on the other hand, allow investors to invest in financial markets through UCITS, offering the potential for higher long-term returns but also exposing investors to capital losses in the event of stock market fluctuations.

In 2023, unit-linked policies yielded an average of 6.20%, compared with 2.60% for euro-denominated funds. However, over a 13-year period, euro-denominated funds yielded an average of 2.10% per year, while unit-linked policies generated an average annual return of 3.10%. In both cases, life insurance outperformed inflation, which rose by an average of 1.70% per year.

Over the long term, life insurance—whether invested in euro-denominated funds or unit-linked funds—offers better returns than the Livret A and traditional taxable savings accounts. In fact, over the past 13 years, the Livret A and the LDDS have yielded an average of 1.20% per year, while traditional taxable savings accounts have generated an average annual return of 0.70%.

In conclusion, unit-linked policies offer higher potential returns than euro-denominated funds over the long term, but they also expose the investor to the risk of capital loss. It is therefore essential to fully understand the risks and benefits of each type of investment vehicle before investing in life insurance.