Talk about insurance contracts it should make us think hedgingbut this this is not always trueas various types of contracts offered by insurers or financial institutions are almost exclusively an investment vehicle rather than a risk hedging tool.
Sorry, but I wasn’t introducing myself!
My name is Stefano Biciocchi and I am a independent financial advisor!
Mr. Cafone told me several times about his difficulty in explaining the thousand intrigues of insurance policies and in the end… I decided to write an article myself.
Because often big disappointments and serious investment mistakes result from the wrong insurance product.
IDENTIFY THE DIFFERENT TYPES OF INSURANCE: PERIL INSURANCE
The premium you pay to the company can be frozen cover a risk or in a investment based on politics.
The prize for hedging is paid to obtain financial protection in case of unexpected events or losses and serves to cover the insurance costs and to ensure that if situations such as accidents, illness or damage to insured property arise, the insurer will compensate the insured or cover the expenses in accordance with the terms of the policy.
Among them, the net risk policies they can cover specific events such as premature death (TCM – Temporary Death Policy), permanent disability or temporary incapacity for work or civil liability in case of damage to third parties.
These covers are low cost.
To give you an idea, a TCM with an insured capital of €100,000.00 or a family unit RCT (Third Party Liability) to cover third-party damages up to a few million euros can cost around €100/year.
These are the good insurance policieswhich many fail to subscribe to.
For example, the head of a family, the sole earner, should seriously consider getting a TCM + Disability, which at an affordable cost would cover the risk of leaving his family in serious difficulty if the insured event occurs.
Many think so the death insurance policy on the mortgage is sufficient. The latter only guarantees repayment of the mortgage on the property (or on behalf of the deceased) but does not guarantee income for family members. TCM serves just that: to give it sufficient liquidity for a family in the event of deathat least for a period sufficient for reorganization.
If you’re a single income family and you haven’t saved a nest egg, go and build one right away.
The insurance premium investment use paid in lieu of obtaining a insurance product that offers an element of growth or accumulation of value over time and is invested in financial instruments such as mutual funds or securities.
WHY AVOID INVESTMENT POLICIES: INSURANCE IN DISGUISE
These policies placed by banks and insurance companiestaking advantage of the sense of protection and security that the term “policy” evokes in people’s minds.
They are often sold as unencumbered, unattached policies (art. 1923 et seq), and which do not contribute to the formation of the hereditary axis.
Most people subscribe to them “politicswithout any good reason, while those who really need to protect their assets or optimize aspects of succession are unaware of the existence more effective tools and above all the policies not intermediate from the banking/insurance system, but accessible through independent consultants. But that’s not the biggest problem!
The investment policiesin fact, they can be extremely expensive: The costs associated with these real investment products may have a TER 3 or 4% per annum, significantly reducing your overall return on investmentso much so that some consider these policies to be real “legalized fraud”!
Look at the chart below for the difference in a twenty-year investment between choosing a policy or an efficient instrument like an ETF. The chart looks at the exact same 5% annual return for both, but with different fees:
Tell me now how happy you are that your insurance policy is non-encumbered, not seized and not contributing to the formation of the inheritance!
ETFs and insurance play one very different purpose: one investment, the other risk protection.
That’s exactly the problem!
Some policies are disguised as insurance but are actually used for investment purposes, the graph makes it clear that in this case it is an economically incorrect choice.
THE DIFFERENT TYPES OF INVESTMENT OR “FINANCIAL” POLICIES
Insurance policies have undergone a transformation over the years, moving from risk hedging tools to complex investments. However, not all policies are the sameand many (practically all…) of those offered by banks and insurance companies can involve high costs and low returns.
Before taking out a policy, it is essential to carefully evaluate the pros and cons consider more effective alternatives. In any case, consulting an independent financial advisor (like myself) may be the key to getting it informed and conscious financial decisions!
That said, to clarify our ideas, let’s see what the different types of investment or “financial” policies are:
BRANCH OF SEPARATE FUNDING POLICIES 1
QThese policies are generally low risk but include Court fees which have eroded a significant portion of returns in recent years.
In addition, inefficiencies related to prior management may adversely affect the policy’s current and future performance to maturity.
POLITICS BRANCH 3 (SECTION CONNECTION)
There Unit Connected (Branch 3) And a mixed financial insurance policy structured as one life insurance policy linked to a basket of funds where the premiums are invested in financial instruments and the investment risk is borne by the subscriber.
I am worst kind of politicsreal Chinese boxes where fees apply for payments, administration and annuity disbursement.
The icing on the cake is that they themselves invest in funds that have high commissions!
MULTI-COVER POLICIES
The Multi Branch Policies (Branch 1 + Branch 3) they represent a mix between Separate Management policies and Unit Linked policies and this allows you to have the features of a separate management in a single product, e.g. minimum guaranteed performanceand those of real investment funds.
One last thought, although there are investor protection rules that insurance companies must respect, when you sign up for a policy, you still get counterparty risk. I do not know if EuroVita does it ring a bell…
This means that the risk also exists in politics.
WHEN DOES IT MAKE SENSE TO SIGN UP FOR INSURANCE?
As we have seen, taking out a classic insurance policy such as temporary TCM in case of death could be a good option for many families. Despite the ridiculous cost, it can really make a difference in a time of great difficulty.
Different talk about policies like e.g investment tools: it is almost always a bad choice and only in certain cases it makes sense to subscribe to them.
They can be useful when you have a real need heritage protection you hate optimization of inheritance. In any other case, there are less expensive products on the market that may be better for you!
Investment policies are a complex financial instrument that must be approached with care and awareness.
Avoid investment policies offered by banks and insurance companies and, if you think you need it or want to know if it is appropriate in your situation, you should seek advice from an independent financial adviser in order to choose product that best suits your protection and investment objectives, but, above all, to ensure that you choose the most effective product (less expensive!) in the market compared to the proposals of conventional distribution networks (banks and insurance companies).
In fact, remember that the independent advisor works only in your interest and does not sell financial products for which he receives a commission!
If you don’t know who to contact, you can write to me the schedule a free consultation directly!
Stefano Biciocchi – Independent Financial Advice
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