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If life insurance is a very popular investment in France, massively adopted by individuals, on the other hand, the floor guarantee of life insurance remains very marginal and little known to the general public. However, it has advantages that may be of interest to some individuals. Find out in this article what a floor guarantee is, what are the different types of floor guarantee, the advantages and disadvantages of this option linked to the life insurance contract.
What is the minimum guarantee?
The floor guarantee is an optional guarantee of the life insurance contract, subscribed or not by the holder of the contract, which guarantees him that the beneficiary (ies) of his life insurance contract will receive at his death a minimum sum. at least equal to the aggregate of the sums paid, but which may be greater depending on the type of minimum guarantee taken out.
It should be remembered that the minimum guarantee obviously relates to the sums invested by the subscriber of the contract on life insurance unit-linked supports, which may vary upwards or downwards according to market fluctuations and therefore present a risk of capital loss. The euro fund, guaranteed in capital, is of course not concerned.
With the minimum guarantee, it is the insurer who, in return for an annual contribution from the holder of the life insurance contract, bears the risk of capital loss. The floor guarantee only intervenes on the death of the policyholder, it can be assimilated to a death guarantee for the benefit of the beneficiaries.
Floor guarantee: what are its advantages? What guarantees are possible?
The floor guarantee allows the subscriber of the contract to guarantee to his beneficiary(ies) the payment of a minimum amount upon his death. This is a way to prepare / ensure your succession from an investment that is already very tax-efficient in terms of succession.
Note that there are 4 types of minimum guarantee which make it possible to guarantee the payment of a more or less important capital.
With the classic minimum guarantee, the beneficiaries will receive on the death of the subscriber the amount that the latter had invested in units of account, without taking into account any loss in value of his investments on his death. For example, the beneficiary of a subscriber who has invested 30,000 euros and whose valuation of his unit-linked investments at the time of his death is only 26,000 euros (4,000 euros loss) will indeed receive 30,000 euros and not 26,000 euros. Capital loss is excluded.
With the indexed floor guarantee, an indexation rate is applied each year to your cumulative payments, allowing the subscriber of the contract to determine what will be the minimum capital that its beneficiaries will be able to receive. For example, the beneficiary of a subscriber who has invested 50,000 euros with an indexation rate of 2% per year will receive at the time of the subscriber’s death if this occurs following 10 years the sum of 60,950 euros .
With the ratchet floor guarantee, the amount paid to the beneficiary on the death of the subscriber is equal to the highest value reached by the contract. Note that this option is however only available to contract holders who are at least 65 or 70 years old, depending on the insurer. For example, a subscriber placed 80,000 euros on his 70-year contract. At age 75, the capital reaches 105,000 euros before falling to 90,000 euros on the death of the insured at age 80: the beneficiary will receive 105,000 euros.
With the increased guarantee, the amount paid to the beneficiary on the death of the holder of the contract is chosen by the insured at the time of subscription by affecting the capital reached by a coefficient of increase. For example, the insured has made a first payment of 50,000 euros before making other payments representing a total of 50,000 additional euros and he has set an increase coefficient of 130% at the time of subscription, then the beneficiary will receive upon death of the insured 130,000 euros.
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Floor guarantee: what are its disadvantages?
The main disadvantage of the floor guarantee is of course its price. This depends on 3 factors: type of guarantee, age of the insured and capital at risk (difference between the insured amount and the value of the savings reached at a given time) and it can be particularly high.
In addition, the minimum guarantee of life insurance is also accompanied by certain constraints such as a medical examination, a detailed questionnaire of your lifestyle, but also sometimes restrictions. Thus, the practice of a risky activity or suicide may prevent the minimum guarantee from applying. The floor guarantee is therefore aimed more at elderly people who have a life insurance contract with a substantial capital invested in units of account and who wish to prepare their estate by anticipating an imminent death.