Life insurance vs property: what if you invested differently?

Life insurance vs property: two cornerstones of household wealth

When it comes to building wealth, many households instinctively choose real estate; others swear by life insurance and financial markets. In reality, the true comparison between life insurance vs property only makes sense if you look at one key parameter: the investment rate

In a robust buy or rent analysis, this investment rate (taux de placement) is central. It represents the annual return you expect from your savings if you stay a tenant and invest your down payment and monthly savings in an investment product, typically a life insurance policy (with euro funds, unit-linked funds, ETFs, etc.).

This article shows how that investment rate can tilt the balance between life insurance vs property, and how it reshapes the long-term buy or rent decision when you run numbers over 20–25 years.

1. The investment rate: the missing link in most buy or rent calculations

Most simplistic comparisons just pit a rent against a mortgage payment. This is incomplete. The right question is: “What happens to the money I don’t put into property?”

1.1. What exactly is the investment rate?

The investment rate is the average annual return you expect on your financial investments if you don’t use your cash for a home purchase:

• Life insurance – euro fund: often around 2–3% gross in 2024 (before taxes and fees).
• Life insurance – unit-linked / ETFs: expected 4–6% per year over the long term, but with volatility.
• Other investments (index funds, brokerage account, PEA): similar long-term expectations to equity markets (5–7% annualised possible, not guaranteed).

In a simulator like buy-or-rent.net, this investment rate is used to grow over time:

• Your initial down payment if you keep renting.
• The monthly gap between what you would pay as an owner (mortgage, property tax, charges) and your actual rent.
• Any extra savings freed up by tax or cost differences.

1.2. Example: 50,000 € down payment – buy a home or invest it?

Assume you have €50,000 as potential down payment. Two options:

• Scenario A – Buy property: you use the €50,000 as down payment on your main residence.
• Scenario B – Rent + invest: you remain a tenant and invest the €50,000 into a diversified life insurance policy with a 4% net investment rate.

After 20 years, with no additional contributions:

• Future value ≈ 50,000 × (1.04)²⁰ ≈ €109,600.

This figure must be compared with the net value of your home after 20 years (market value – remaining mortgage – selling costs). The buy-or-rent.net simulator does this type of calculation, combining your loan rate (~3.6%), notary fees, property tax, and above all your assumed investment rate if you choose life insurance instead of bricks.

2. Life insurance: the cornerstone of the “I keep renting” strategy

Whenever you ask yourself whether it’s better to buy or rent, you have to take the “I rent and invest the difference” strategy seriously. In many European countries, the most common wrapper for this is life insurance.

2.1. Why life insurance is central to the investment rate

Life insurance offers:

• A relatively safe euro fund (capital guaranteed by the insurer) with moderate returns.
• Unit-linked funds (UC) invested in equities, bonds, REITs, ETFs, etc., with higher return potential but market risk.
• Favourable tax treatment after 8 years (annual tax allowances on gains, specific flat tax rules).

If you stay a tenant, you can:

• Invest your down payment into a diversified life insurance policy.
• Set up a monthly transfer equal to the difference between the total cost of ownership and your rent.

The overall expected return of this strategy is captured in the simulator by your chosen investment rate.

2.2. Numerical example: rent and invest the difference

Imagine the following situation:

• Current rent: €900 / month.
• As an owner: average cost over time (mortgage + property tax + extra charges) = €1,200 / month.
• Difference to invest: €300 / month.
• Estimated net investment rate on life insurance: 4% per year.
• Investment horizon: 25 years.

Approximate future value of the monthly investments at 4%:

• Yearly contribution: 300 × 12 = €3,600.
• Future value ≈ 3,600 × ((1.04)²⁵ − 1) / 0.04 ≈ 3,600 × 47.7 ≈ €171,700.

Add the future value of your initial down payment invested at the same investment rate, and you get a sizeable financial portfolio. The buy or rent question now becomes: is this portfolio better or worse than the net home equity you would have built by buying?

3. Property as an implicit investment rate

Unlike a fund, real estate doesn’t display an explicit “yield” in your brokerage app. But it does have an implicit investment rate, defined by:

• Capital gains (price per m² growth in your area).
• The mortgage rate you lock in (around 3.6% in 2024).
• Upfront costs: notary fees (7–8% for existing, 2–3% for new build), agency fees (3–5%).
• Ongoing costs: property tax, maintenance, renovation, insurance.

3.1. Example: long-term return of a main residence

Let’s take:

• Purchase price: €300,000 (existing property).
• Notary fees ≈ 8%, i.e. €24,000.
• Total entry cost: €324,000.
• Holding period: 20 years.
• Average price growth: 1.5% per year.

Estimated market value after 20 years:

• 300,000 × (1.015)²⁰ ≈ 300,000 × 1.35 ≈ €405,000.

Ignoring for a moment maintenance and property tax, this is already less impressive when you remember you paid 324,000 € at entry. Once you factor in:

• Property tax (say €1,200 per year, with regular annual increases).
• Renovation and repairs (€3,000 every 5 years, i.e. €12,000 over 20 years).
• Financing costs (interest at ~3.6% plus borrower insurance around 0.25–0.45% of the loan amount per year).

The effective net investment rate of this home may end up around or even below 1% per year in low-growth markets. In dynamic cities with 3–4% annual price gains, the picture is very different. That’s why comparing it with a realistic investment rate on life insurance or ETFs is crucial.

3.2. When the investment rate makes renting + investing more attractive

Two extreme cases show how sensitive the result is to your investment rate assumption:

• If your realistic investment rate (via a dynamic life insurance allocation) is 5% net annually, and your local property market only grows at 1–2%, the “rent + invest” strategy can outperform buying in a long-term buy or rent comparison.
• If, by contrast, you live in a city where property prices historically increased by 3–4% per year, and you only feel comfortable with low-risk euro funds at 2%, buying may still be more attractive despite the modest financial return.

The outcome depends on your risk profile, your city, and how long you plan to hold the property. That’s why a simulator where you can tweak the investment rate is far more informative than a generic rule of thumb.

4. Life insurance vs property: three 25-year scenarios

Let’s model three profiles over 25 years to see how much the investment rate matters. Common assumptions:

• Comparable housing (same area, similar size).
• Annual inflation: 2%.
• Annual rent increase: +2% (in line with typical rental indexation).

4.1. Scenario 1: low investment rate (2% net)

Very cautious profile, mostly euro funds inside life insurance.

• Initial capital / down payment: €40,000.
• Monthly difference between owning and renting: €200, invested instead of spent on housing.
• Investment rate: 2% net.

Future value after 25 years:

• Lump sum: 40,000 × (1.02)²⁵ ≈ €65,600.
• Yearly contribution: 200 × 12 = €2,400.
• Future value of contributions: 2,400 × ((1.02)²⁵ − 1)/0.02 ≈ 2,400 × 31.9 ≈ €76,600.
• Total ≈ €142,000.

Compare this to a €250,000 property appreciating at 1.5% per year: after 25 years it might be worth around €330,000–340,000 before costs. Even accounting for property tax and maintenance, the net home equity can easily exceed €142,000. At this low investment rate, the “rent + invest” strategy is structurally weaker, and property looks relatively more attractive.

4.2. Scenario 2: medium investment rate (4% net)

Balanced profile, diversified life insurance with a meaningful equity / ETF exposure.

• Initial capital: €40,000.
• Monthly difference invested: €200.
• Investment rate: 4% net.

Future value after 25 years:

• Lump sum: 40,000 × (1.04)²⁵ ≈ €106,600.
• Contributions: 2,400 × ((1.04)²⁵ − 1)/0.04 ≈ 2,400 × 47.7 ≈ €114,500.
• Total ≈ €221,000.

Now the gap with property is much narrower. Depending on your actual buying costs (7–8% notary fees, 3–5% agency fees), your property tax level, and renovation needs (especially if energy performance is poor and you must invest in upgrades), the “rent + life insurance” strategy can match or beat homeownership on a pure wealth basis in this buy or rent comparison.

4.3. Scenario 3: high investment rate (6% net)

Dynamic profile, strong equity / ETF allocation via life insurance, PEA or similar accounts.

• Initial capital: €40,000.
• Monthly difference invested: €200.
• Investment rate: 6% net (over the long run, with significant volatility).

Future value after 25 years:

• Lump sum: 40,000 × (1.06)²⁵ ≈ €171,000.
• Contributions: 2,400 × ((1.06)²⁵ − 1)/0.06 ≈ 2,400 × 60.9 ≈ €146,200.
• Total ≈ €317,000.

At this point, your financial portfolio rivals or even exceeds the net value of a €250,000 property in a slow-growing area, once you subtract all buying and ownership costs. A high investment rate radically changes the answer to the life insurance vs property question.

5. Risk, liquidity and flexibility: beyond the investment rate

The investment rate is not everything. You also need to consider:

5.1. Risk profile

• Life insurance: euro funds are low risk but low return; unit-linked funds are market-based and can suffer temporary or prolonged drawdowns.
• Property: local price risk, vacancy risk for rentals, unexpected repairs, regulatory risk (e.g. energy performance standards that force costly renovations).

5.2. Liquidity

• Life insurance: partial withdrawals typically take a few days; you can adjust your asset allocation over time.
• Property: selling can take months; transaction costs are high; early repayment of your mortgage can trigger prepayment penalties (often up to 3% of the outstanding balance or 6 months of interest).

5.3. Life goals and non-financial factors

Property provides housing security and, once the mortgage is paid off, can significantly reduce your housing budget in retirement. Life insurance, on the other hand, offers flexibility to adapt to changing projects (career moves, education, early retirement), and can be an efficient estate planning tool.

6. Using the investment rate properly in a buy or rent simulator

To make a meaningful choice between life insurance vs property, you should use a simulator that allows you to adjust the investment rate and other key parameters:

• Loan rate (~3.6% currently), borrower insurance cost (around 0.25–0.45%).
• Notary and agency fees (7–8% + 3–5% in many markets).
• Property tax and its annual revaluation.
• Rent indexation and long-term inflation.
• Expected renovation costs, especially if energy performance is poor.

On buy-or-rent.net, you can explicitly set the investment rate to model what happens to your down payment and monthly differences if you stay a tenant and invest via life insurance or other vehicles. The tool then compares the long-term net wealth in both cases, helping you structure your own view on the buy or rent dilemma.

7. Conclusion: life insurance vs property – it depends on your investment rate and on you

There is no universal winner between life insurance and property. The better option depends on:

• Your risk tolerance and time horizon.
• Your local property market dynamics (price trends, taxes, renovation constraints).
• Your realistic investment rate over 15–25 years.
• Your personal goals: stability, mobility, inheritance planning, retirement income.

This article is for educational purposes only and does not constitute personalised financial advice. To move from theory to numbers that reflect your own situation, the best approach is to model your actual data: home price, rent, loan terms, taxes, renovation, and the investment rate you consider achievable via life insurance or other investments.

Curious to see, in hard numbers, how life insurance vs property plays out for you and how it impacts your buy or rent decision? Simulate your situation on buy-or-rent.net