Life insurance does more harm than good to some subscribers, according to the Prudential Control and Resolution Authority (ACPR). In a press release issued on Tuesday, May 3, the banking and insurance policeman “calls on distributors of life insurance contracts to better respect the duty to advise customers who are financially fragile or in difficulty”. But what exactly does the body attached to the Banque de France reproach to insurers? For the ACPR, life insurance contracts can quite simply turn out to be harmful for policyholders who do not have precautionary savings. In question: “particularly penalizing entry and management fees if they are forced to quickly redeem their life insurance contract due to lack of liquidity”.
Remember that fees on payment (or entry fees) – sometimes reaching 5% with traditional insurers, but zero with internet players – come directly to the capital invested in life insurance. It is therefore advisable to keep your contract for several years to see these costs absorbed by the performance of the product. Not to mention that the taxation on redemptions is more favorable from 8 years of detention. However, a household that does not have sufficient woolen stockings to deal with an unforeseen event may be forced to withdraw all or part of the sums invested, thus losing the fees on payment and the tax advantage on any gains obtained.
Inappropriate risk taking
Another pitfall noted by the ACPR: risk-taking linked to an investment in life insurance. The subscription of units of account (UC), risky media (equities, real estate, etc.) on which the risk is borne by the insured – unlike the euro fund where it is the insurer who guarantees the capital -, “does not cannot be adapted to the needs of customers whose financial situation is fragile at the time of subscription, warns the insurance policeman. In fact, this situation would not make it possible to absorb any capital losses”.
Thus, while the investment in UC is recommended over several years, the time to smooth out the volatility of the financial markets, a customer without precautionary savings may be led to buy back his contract due to lack of liquidity… and thus record a large loss in capital. Especially if he has to withdraw his capital when the markets are in the trough. A consequence that is all the more damaging since the life insurance envelope is “intended to constitute stable long-term savings”, insists the regulator.
Pointing to failures in the marketing of life insurance contracts, the ACPR urges them to take better care of their financially fragile customers. And recalls their “obligation to take into account the financial situation of subscribers, as part of their duty to advise and to verify that the proposed contract is consistent with all the requirements and needs of customers”.
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