Life Insurance: Can You Be Prevented From Withdrawing Your Money?
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In view of the 2% of savings book A, the euro life insurance funds pale in comparison. In order to prevent savers from selling their assets, a redemption block is possible. But in which case?
From MoneyVox,
In 2021, the average return on euro money from life insurance contracts was just 1.28%. While the Livret A rate has just been revalued to 2% net since August 1st, savers may wish to arbitrate in favor of this more liquid and fee-free investment. Some are concerned about the implications of the Sapin-2 law allowing such operations to be blocked or delayed. With massive withdrawals, could insurers really prevent certain customers from getting their funds back?
The Sapin 2 law allows a ban on life insurance redemptions
The Sapin-2 law passed in 2016 made headlines in the financial sector. At the time, Article 21 bis in particular had raised concerns with the savings association Afer, who then spoke of a “socially irresponsible” and “legally questionable” measure. This provision is intended to allow insurers to limit, suspend or delay redemptions or payments for life insurance contracts. However, to activate this lever, a safety precaution is provided: Sapin-2 blocking can only be used in exceptional cases, reflecting the economic crisis of 2008.
According to several financial experts, fears about the application of Article 21 bis of the Sapin-2 law are currently unfounded. Stellane Cohen, President of Altaprofits, states, “Of course, there is no such thing as zero risk. In the event of an exceptional situation, the HCSF [Haut conseil de stabilité financière, NDLR] have the ability to impose certain measures. But we are not currently in a serious financial system stability situation that would explain why the HCSF is triggering the Sapin 2 law.Moreover, such a measure can only be temporary and be decided for 3 months, renewable once, ie a total no more than 6 consecutive months of blocking.
Also read: Life Insurance: The 6 Important Information to Consider on Your Annual Statement
Life insurance contracts are not (yet) affected by mass withdrawals
At the moment, companies are not seeing any massive redemption requests for their life insurance policies. On the contrary, total revenue is positive, meaning 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 discernible risk. We do not see any massive outflows.”
First of all, it should be noted that the change in the Livret A rate has only recently taken place and has only just increased to 2% on 1 August. Above all, however, the 1.28% return on life insurance contracts in 2021 only affects the capital invested in euro funds, i.e. funds with guaranteed capital. Life insurance has another facet, units of account that aren’t guaranteed but give hope for better profitability. Nearly 40% of the payments made since early 2022 are now flowing into these types of investment vehicles, largely favored by multiple incentives from insurers.
What returns for euro funds in 2022?
The returns of euro funds are known only after the fact, ie during the first months of 2023 for the remuneration paid in 2022. However, we shouldn’t expect great performances, but rather a further decline in sets issued. According to Stellane Cohen, the yield could drop to 0.6% or even 0.5%…unless insurers decide to tap their cash reserves. In fact, every year companies set aside part of their profits to be able to later distribute them to their customers, thus smoothing out their contracts’ remuneration. The PPB, Reserve for Profit Sharing, could therefore allow certain insurers to earn a return of up to 2% over two years.
