To understand the relationship between unit-linked investments and savings value, distinguish between the number of units held and the value of the underlying investment. In a life insurance policy, unit-linked investments allow investments to be diversified across financial markets. They expose savers to market fluctuations. The capital invested in these investments is not guaranteed.
The question of the insurer’s commitment calls for a careful reading of the policy. The AMF states that management fees for unit-linked investments are deducted from the number of units held. However, its document does not specify the scope of the insurer’s commitment regarding this number of units: ask your insurer for clarification, referring to the features of your policy.
What do unit-linked investments represent?
A unit-linked investment may correspond to different underlying investments, such as shares, bonds or fund units. The list of available unit-linked investments varies depending on the policy and the provider.
When reviewing your policy, start by identifying the investments chosen and the information describing them. The choice of investments is guided in particular by your profile, your objectives and the level of risk you are prepared to take. Ask yourself what you want to do with these savings and whether the features of the investments match what you are prepared to accept.
Number of units and value: what should you look at?
The number of units indicates a quantity. The value of the savings also depends on the value of the underlying investment. Unit-linked investments expose savers to market fluctuations, so their value can vary. Consider this information together when examining your policy: a number of units and a value expressed in euros answer different questions.
Management fees for unit-linked investments are deducted annually, or even more frequently, from the number of units held. To understand how this quantity changes, consult the information on your policy’s fees. Then compare the information about the units with that concerning the value of the underlying investment.
What is the risk to capital?
For unit-linked investments, capital is not guaranteed. This feature is important when assessing the risk of capital loss and the level of risk you are prepared to take.
By comparison, capital invested in a euro-denominated investment is guaranteed when the policy matures; in some policies, this guarantee is before management fees. Check the features of each investment in your own policy, rather than applying the description of the euro-denominated investment to all of them.
Understanding fees and allocation
In a multi-investment policy, switching fees are deducted from the amount transferred from one investment to another when the allocation changes. Examine this section alongside the policy’s management fees: the two descriptions concern different transactions.
You can allocate your savings among the investments yourself, under self-directed management, or entrust the allocation of assets to your intermediary according to your previously determined risk profile, under delegated management. Identify the management method chosen and the investments concerned before considering a change.
Which documents should you consult before deciding?
The AMF recommends reading the key information document and the documentation provided, as well as comparing policies, particularly their fees. Use these documents to find the features of the investments, then consider them alongside your objectives and risk profile.
- Identify the available unit-linked investments and those you have chosen.
- Note the information on the number of units and the value of the investments.
- Check the management fees and, for a multi-investment policy, the terms applicable to switches.
- Note the questions to ask your insurer about its commitment and the features of your policy.
This information is general and provides a starting point for your review. To make a decision suited to your circumstances, examine your policy documents and speak with your intermediary.
