Life Insurance: Can You Be Stopped From Withdrawing Your Money?
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Life Insurance: Can You Be Stopped From Withdrawing Your Money?

(Image credits: © Andrii Yalanskyi - stock.adobe.com)

(Image credits: © Andrii Yalanskyi – stock.adobe.com)

Faced with 2% of Livret A, euro life insurance funds pale in comparison. To prevent savers from selling their assets, it is possible to block redemptions. But anyway?

by MoneyVox,

In 2021, the average return on euro funds from life insurance contracts was only 1.28%. While Livret A’s rate has just been revalued to 2% net since August 1, savers may want to arbitrate in favor of this more liquid and free investment. Some are concerned about the effects of Sabine’s Law 2, which makes it possible to prevent or delay such processes. If massive withdrawals happen, can insurance companies really prevent some customers from getting their money back?

Sabine Law 2 allows life insurance refunds to be prohibited

Sabine Law 2, adopted in 2016, made headlines in the financial sector. Article 21bis, in particular, raised concerns in Afer, a savers’ association, which then spoke of a “socially irresponsible” and “legally questionable” measure. This provision is intended to allow insurers to limit, suspend or delay refunds or payments on life insurance contracts. To activate this lever, however, a guarantee is provided: the Sapin 2 ban can only be used in exceptional circumstances, echoing the economic crisis of 2008.

According to many financial experts, the fear of using Article 21bis of the Sabine Law 2 is currently unfounded. Stellan Cohen, President of Altaprofits explains: “Of course, there are zero risks. In the event of an exceptional situation, HCSF [Haut conseil de stabilité financière, NDLR] You will have the possibility to impose certain measures. But at the moment we are not in a dangerous position for the stability of the financial system which explains why HCSF has triggered Sapin 2. Moreover, this measure can only be temporary and decided for a period of 3 months, renewable once, i.e. a total of 6 consecutive months of withholding on the most.

Also read: Life Insurance: The Six Important Information to Look at in Your Annual Statement

Life insurance contracts have not been affected (so far) by mass withdrawals

Currently, companies do not see huge refund requests in life insurance contracts. On the contrary, the total pool is positive, which means that savers put more money into their contracts than they do. Philippe Crevel, director of Cercle de l’Epargne, confirms this trend: “At the moment, there is no beginning to risk. We do not see any significant outflows.”

First of all, it is worth noting that the change in the rate of Livret A is very recent, having increased to only 2% on August 1st. But above all, the 1.28% return achieved by life insurance contracts in 2021 relates only to the capital invested in Euro funds, these funds with guaranteed capital. Life insurance has another aspect, the units of account, which are not guaranteed, but can provide hope for better profitability. Almost 40% of payments made since the beginning of 2022 are now directed towards this type of investment vehicle, which is largely favored by various incentives from insurance companies.

What is the return of euro money in 2022?

The returns on the euro money are known only later, that is, during the first months of 2023 for the bonus paid in 2022. However, we should not expect great performance, but rather a further decrease in the rates issued to savers. According to Stellan Cohen, the return can fall to 0.6 or even 0.5% … unless the insurance companies decide to use their money reserve. In fact, every year companies set aside a portion of their profits to be able to distribute them later to their customers, thus facilitating the rewards of their contracts. Thus, the PPB, which is intended for profit sharing, can allow certain insurers to offer a return of up to 2% for two years.

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