The pitfalls to avoid
Life insurance is a versatile tool with real tax advantages, but it can also disappoint when it is badly used or badly chosen. Here are three common pitfalls to know about so you avoid unpleasant surprises.
Charges that are sometimes too heavy
Some contracts, in particular those distributed by traditional banks or insurers with little transparency, apply entry charges ranging from 3% to 5% on every payment. On top of that come annual management charges, generally between 0.5% and 1% for euro funds, and up to 2% for some unit-linked funds. These charges eat directly into your performance. Over the long term, the difference can be considerable.
A euro fund that pays less and less
Historically favoured for its security, the euro fund is seeing its return erode. In 2025 it struggles to go beyond 2%, which remains below inflation in many cases. A contract invested 100% in euro funds is therefore rarely advantageous today.
Useless options
Some life insurance policies offer “floor guarantees”, automatic switching options or underperforming managed allocations, which generate additional charges without offering any real added value. It is essential to understand each option before taking it out.
Real-life case
These two concrete examples make it easier to picture how life insurance can adapt to different plans.
Julie, 35, wants to buy a property in 10 years
She chooses to feed a life insurance policy with a balanced split: 50% in euro funds to secure it, 50% in unit-linked funds to give it momentum. This investment lets her build up a deposit gradually, while benefiting from lighter taxation after 8 years if she wants to make a withdrawal at that point.
Marc, 58, wants to pass on capital to his children efficiently
He sets up regular payments into a life insurance policy, naming his children as beneficiaries in the event of death. This lets him plan the estate ahead, and pass on to them up to 152 500 € per beneficiary, outside inheritance tax, in a very advantageous tax framework.
Tips to make the most of your life insurance
Here is a series of simple, concrete recommendations that every saver can apply, whether you are new to it or well informed:
- Compare several contracts before you commit. Avoid those that apply high entry charges.
- Diversify your vehicles. A contract balanced between euro funds and unit-linked funds makes it possible to combine security and performance.
- Take care over the wording of the beneficiary clause. It is not set in stone: you can personalise it, change it, and adapt it to your estate strategy.
- Watch the management charges on unit-linked funds. Some funds take more than 2% a year, without offering better performance than the indices.
- Be wary of your bank’s “in-house” contracts. They are rarely the best performing, nor the most transparent. Online banks or independent insurers often offer more competitive deals.
- Match the management to your profile. If you have a degree of autonomy, go for self-directed management. Otherwise, a managed allocation can be useful, provided it is clear, easy to read, and effective.
How do you choose your life insurance?
Before signing a contract, it is essential to ask yourself the right questions.
Here is a quick checklist to go through so you avoid unpleasant surprises:
- Are the charges reasonable? Look at the entry, management and switching charges together.
- Are the investment vehicles varied and of good quality? A good contract offers a well-performing euro fund and a wide choice of unit-linked funds, with SRI, equity and property funds, and so on.
- Does the management offered match your level of autonomy? Are you comfortable with self-directed management, or do you prefer delegated management?
- Is your investment horizon long enough? Life insurance really makes sense from 8 years onwards. If you are investing for the short term, other investments may be better suited.
Life insurance in 2025: useful or outdated?
PEA, PER, SCPI, ETF...), some people wonder about the relevance of life insurance.
The answer is nuanced, but clear: life insurance remains a valuable tool, provided you use it strategically.
It still lets you:
- Diversify your savings in an attractive tax framework
- Adapt your strategy to multiple goals: passing on wealth, retirement, projects in between
- Invest flexibly, at your own pace, and with real flexibility.
To get decent performance against inflation, on the other hand, it is necessary to include a share of dynamic vehicles, while keeping the risks under control.
Do you want to go further?
A life insurance policy can be an exceptional tool… or a disappointing product, if it is badly selected or badly used. The differences between contracts are sometimes considerable: charges, vehicles offered, quality of management…
At WYP Consulting, our advisers support you to:
- Select the contract best suited to your goals, your investment horizon and your risk profile
- Optimise your tax position in the short and the long term
- Build an asset allocation that is coherent, effective and under control.
Do you have a life insurance policy and not know whether it is well managed? Do you want to open one but not know where to start? We offer you a free review of your wealth situation.
