What do you want to know?
Why take out a life insurance policy?
Life insurance is a real Swiss Army knife of wealth management. Initially designed as insurance, it is more often used to save, to receive additional income, to prepare for your retirement, and to pass on.
Life insurance benefits from strong tax advantages in the event of redemption.
First of all, know that when you make a withdrawal (partial or total), it is made up of a share of capital and a share of interest.
The taxable base will only consist of interest: the share of capital withdrawn will never be taxed.
The applicable tax will depend on the age of your contract as well as when the premiums were paid. The tax framework is optimal after 8 years: in addition to a reduced tax rate (as an alternative to taxation for your income tax), you will benefit from an annual allowance on the interest earned by your contract (€ 4,600 per year for a single person and € 9,200 for a couple).
On death, the capital will be transferred to the person chosen under very favorable tax conditions: in fact, life insurance is not inheritance, for the portion of premiums paid before age 70.
Life insurance, a multifunction tool
What is a life insurance contract?
Life insurance is a multifunctional savings product that allows you to grow capital, build up precautionary savings or prepare for retirement.
It is also an unparalleled asset management tool since it allows capital to be transferred outside the framework of the inheritance to people that the subscriber will have designated in the contract by means of the beneficiary clause.
Legally, it is a contract concluded between an individual (the subscriber) and a financial intermediary (a bank or an insurance company).
We also often hear the term insured in the contract. It is in fact the person whose death conditions the payment of the capital by the insurer. Usually, the policyholder and the insured are the same person.
Opening of the contract
Life insurance is a contract by which the insurer undertakes, in return for the payment of premiums, to pay an annuity or a capital to the insured or to his beneficiaries:
After opening the contract with an initial payment, it is possible to make payments, regular or not, without limit on the amount.
Even though it is more taxable to save for at least 8 years, you have the right to terminate your contract or make withdrawals at any time.
Beneficiary clause
In a life insurance contract, the beneficiary clause designates the people who have been chosen by the policyholder to receive capital on his death. This beneficiary clause must be very precisely drafted to avoid family conflicts after the death of the subscriber. It is this which determines the way in which the death benefit will be allocated to the designated beneficiaries.
The subscriber has a wide freedom as to the people he can designate as beneficiaries. It can be his children, his grandchildren, his spouse, a named friend, a charity, etc.
Recourse to an option beneficiary clause could be a solution: the choice by the first-rank beneficiary (ies) of a certain portion of capital would allow the beneficiaries of subsequent ranks to benefit from the remaining portion.
The beneficiary clause may also be subject to dismemberment. The dismemberment of the beneficiary clause makes it possible to carry out a double transfer of capital to several people.
Life insurance taxation
The "death" tax depends on the age of the subscriber on the day of each payment (the spouse / PACS partner is exempt in all cases):
It is at the time of redemption that the subscriber is taxed:
taxation only relates to the share of interest included in the repurchase (= exempt capital);
the tax rate can be relatively low!
The tax rate is currently 12.8% or 7.5% if the contract is over 8 years old and you have less than € 150,000 on all your contracts.
Social security contributions (rate of 17.2%) are retained each year or upon redemption depending on the chosen medium.
Savings availability
Your money remains available at all times.
To recover it, you must make a "redemption" of all or part of your savings (total or partial redemption).
You can also set up scheduled redemptions, i.e. permanent transfers (monthly, quarterly or semi-annually) from your life insurance contract to your current account
Unlike a regulated passbook which is always capped, life insurance has no deposit limit.
It is therefore quite possible to use this envelope to cope with a hard blow or to remunerate cash in order to finance another medium-term project.
Life insurance support
Once your money has been paid into the contract, you have the choice to invest in:
The Euro Fund: Your savings are not subject to movements in the financial markets, but the average return on Euro funds is limited and has tended to decrease for several years;
When it is invested 100% on the euro fund: we are talking about single-support contracts.
Account units: You have a varied choice of media (business sectors, geography) offering an expectation of gain greater than the return on the fund in euros, but your savings are not guaranteed, you may lose your money.
When it is invested Between euro and UC fund: they are qualified as multi-support contracts.
End of the contract
Life insurance is not only used to prepare additional income, it is also a tool of choice for preparing a transfer of assets under favorable tax conditions.
At the end of the contract, the insured or his beneficiaries can recover the sums invested, increased by any gains and reduced by costs (in particular administration and management).
The fact of being considered as an asset excluding inheritance allows it to benefit from a specific tax system.
The terms of exit from a life insurance contract are flexible. The subscriber has several options to recover his investments.
During the savings phase, your life insurance contract is not taxable (excluding social security contributions ). Unlike other financial investments, you are only taxable on the occasion of a withdrawal from your life insurance contract and only on the interest portion withdrawn.
Indeed, your redemption consists of a part of capital and a part of interest, which can be imposed depending on the duration of your life insurance contract and the date of your payments.
When you buy back, you have the choice between 2 options for the taxation of interest on your life insurance contract:
Include this interest in your income tax return which is subject to the progressive income tax scale according to your tax bracket;
Apply the flat-rate withholding tax (PFL), the rate of which decreases depending on the length of your life insurance contract:
35% in the event of redemption before 4 years,
15% in the event of redemption between 4 and 8 years,
7.5% from 8 years old.
In the event of surrender of your life insurance contract after 8 years, you benefit from an annual allowance (all life insurance and capitalization contracts combined) on the interest portion bought back of 4,600 euros for a single person and of 9,200 euros for a couple subject to joint taxation. Taxation therefore only applies to the portion of interest that exceeds the annual allowance.
Advantages & Disadvantages of Life Insurance
Life insurance
Example of use of the life insurance contract
1
Initial situation
Steven is a widower, he has just sold his second home and has € 300,000. He is 74 years old, retired and has two children.
He wishes to invest, but that she remains available in case he needs a part to complete his budget in addition to his retirement pension
2
Life insurance subscription
He opens a life insurance contract and pays the full amount.
The annual return is 4%.
3
Final situation
He died 15 years later, his life insurance contract was then valued at € 500,000.
The beneficiary clause designates his 2 children equally.
They each receive ± € 250,000, all tax-free.