Top 5 benefits of life insurance


The tax advantage of life insurance

Life insurance contracts allow you to benefit from many advantages, particularly in the area of ​​taxation. Tax on life insurance only concerns withdrawals made from the contract: apart from these redemptions, you are not subject to taxes or social security contributions.

On these redemptions, it is necessary to distinguish:

  • The share of capital, which corresponds to your payments: this capital is systematically exempt from all taxation;
  • The share of capital gains, that is to say the interest generated by the capital you have invested. It is only this part of your redemptions that supports the taxation of life insurance.

Example: Pierre makes a partial surrender of €1,000 on his life insurance contract. Out of €1,000, €200 corresponds to interest, the remaining €800 being capital. Its redemption will therefore be taxed on €200 only.

The taxation of interest varies according to the age of the contract. The more time passes, the more tax becomes interesting. From 8 years of ownership, it is even possible to benefit from an abatement each year on withdrawals, the taxation of life insurance is therefore particularly attractive.

Contract less than 4 years

Payments made before September 27, 2017

By default, a flat rate withholding tax (PFL) of 35% is retained for the taxation of interest. The saver nevertheless has the possibility of requesting to benefit from taxation at the income tax scale if this proves to be more advantageous.

Social security contributions of 17.2% apply, in addition to the chosen taxation.

Payments made after September 27, 2017

The single flat-rate levy (PFU) applies by default at the rate of 12.8%. That is an overall taxation of 30% with social security contributions.

The saver retains the possibility of requesting taxation at the income tax scale, to which social security contributions will be added.

Contract between 4 and 8 years

Payments made before September 27, 2017

A PFL of 15% applies by default. Alternatively, taxation at the income tax scale may be requested.

Social security contributions apply in both cases.

Payments made after September 27, 2017

Taxation follows the same rules as for a contract of less than 4 years: choice between the PFU of 12.8% (by default) and the income tax scale. Social security contributions apply in both cases.

Taxation of life insurance after 8 years and annual tax allowance

Life insurance contracts of more than 8 years present a particularly interesting tax advantage. They allow subscribers to benefit from a tax allowance of €4,600 (for a single person) or €9,200 (for a couple) applicable to interest redeemed during a given year.

A couple holding a life insurance contract for more than 8 years can thus buy back up to €9,200 of interest on their contract each year, completely tax-free. However, interest remains taxed at 17.2%, under social security contributions.

Payments made before September 27, 2017

After deduction, the taxation of interest is 7.5% with the PFL. Alternatively, taxation at the income tax scale may be requested.

Social security contributions apply in both cases.

Payments made after September 27, 2017

A PFU of 7.5% is retained by default for the part of the payments (or premiums) which does not exceed €150,000. Beyond that, the PFU rises to 12.8%.

Again, taxation at the income tax scale may be requested instead. In both options, social security contributions are due.

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A flexible investment

Life insurance is a financial envelope, in which you can invest money but also withdraw it. And this at any time. In this, it is characterized by its flexibility: apart from a few examples such as the Livret A (which is capped, in rate and amount) and the ordinary securities account (which does not offer any tax advantage), the life insurance is the only investment allowing you to have total flexibility in managing your savings.

The saver can thus carry out so-called free transactions: at a given time, he chooses to make a payment on his contract or, conversely, a withdrawal (partial redemption or total redemption). During the life of the contract, arbitration operations may be requested. This involves moving all or part of the savings allocated to one support, the euro fund for example, to another, such as a Unit of Account or several. A minimum threshold is generally to be respected in order to be able to validate an arbitration (500 € for example).

It is also possible to set up scheduled payments on a contract. Each month, quarter, semester or year, a predetermined sum will be moved from the bank account to the contract, on the media chosen by the subscriber (euro funds, Units of Account, real estate, etc.). You just have to make sure you meet the minimum required to set up a scheduled payment (€100 per month, for example). Scheduled payments can be changed or stopped at any time.

A subscriber also has the possibility of setting up scheduled partial redemptions, on a similar model. At a given frequency, a predetermined sum will be withdrawn from the contract. Setting up scheduled partial redemptions requires respecting the minimum imposed to establish such withdrawals but also a minimum threshold of savings remaining on the contract.

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An envelope for all projects

Thanks to its flexibility and advantageous taxation, life insurance represents an ideal investment to support many life projects. The ability to withdraw savings at any time makes it possible to release the sums necessary to finance multiple projects:

  • Constitution of a personal contribution for a real estate purchase
  • Funding for your child’s education
  • Financing a trip, a wedding etc.
  • Preparing for retirement
  • Preparation of the transmission (see below on the advantages of life insurance in matters of succession)

Life insurance is also suitable for paying an unforeseen expense (car repair, work on the house, etc.).

A life insurance contract has no end date: it is closed on the occasion of a total redemption, on the policyholder’s decision, or on death. The same contract can therefore lend itself to the preparation of multiple projects, during active life, once in retirement (to generate additional income) and with a view to succession.

It is also possible to open several contracts and dedicate them to a particular asset objective.. For example, you can hold a contract which will be devoted to the constitution of savings for retirement, in order to have an easily withdrawable capital to generate additional income with little tax, and another which will be used only for the constitution capital to be passed on to designated beneficiaries as part of the estate.

Safety and performance, a wide choice of media

Savings invested in life insurance can be invested in many ways. Traditionally, a modern life insurance policy gives you access to a guaranteed euro fund, Units of Account invested in the financial markets – UCITS, dedicated to the equity and/or bond markets – but also to paper real estate supports (SCPI, SC/SCI, OPCI). It is also possible to invest in ETFs, stock market trackers that replicate the performance of an index such as the CAC 40 or the Nasdaq for example. More rarely, Private Equity funds (invested in the capital of companies not listed on the stock market) are offered. Finally, certain contracts stand out with specific and still uncommon funds, making it possible to invest in infrastructure for example, or fairly rare asset classes in life insurance, such as direct stock market shares.

As part of your contract, you can distribute your savings according to your profile : the most cautious, averse to the risk of loss, will invest as much as possible in the fund in euros, for example. Conversely, the most dynamic, who are looking for more return at the cost of taking more or less risk, will be able to invest more easily in Units of Account. Of course, this profile can change over time, depending on your situation and your needs. Life insurance accompanies this development, by allowing you to secure your savings if necessary on the fund in euros or, on the contrary, to boost it on Account Units.

The insurance makes it possible to transmit capital outside the estate

Life insurance presents a major asset when it comes to transferring wealth. Unlike real estate and other savings products (with very few exceptions), savings transmitted in the context of life insurance largely escape inheritance tax. For a large majority of French people, the transmission via life insurance also completely escapes the taxation of traditional inheritances.

Life insurance allows the subscriber to designate the people who will receive the funds. Each contract has a beneficiary clause, which must be completed in order to designate who will receive the funds in the event of death.This clause may be modified over time to adapt to changes in the saver’s situation (divorce, birth, etc.).

The life insurance estate plan works differently depending on the date the premiums are paid on the contract.

Estate insurance for payments before age 70

For the part of the payments made before the age of 70, a generous tax allowance applies to the transmission (death only, the donation of a life insurance contract is not authorized).

The amount of the allowance is €152,500. Each designated beneficiary can benefit from it: it is thus possible to transmit a contract of €305,000 (payments made before age 70) to two designated heirs without the latter having to pay tax. Please note, however, that the allowance applies to all the contracts taken out by the deceased: regardless of the number of contracts transmitted by the same deceased to the same beneficiary, the maximum allowance to which the latter will be entitled will be €152,500.

A flat tax of 20% applies when a designated beneficiary receives between €152,500 and €700,000. Above €700,000, the rate rises to 31.25%.

Estate insurance for payments after age 70

For the part of the payments made after age 70, the allowance amounts to €30,500 on the premiums (payments) and is shared between all the designated beneficiaries. However, the inheritance taxation of such a contract has a significant advantage: the interest generated by the premiums paid after 70 years escapes all taxation. For example, in a contract including €50,000 in payments after 70 years and €20,000 in interest, only €19,500 (50,000 – 30,500) will be taxed at the inheritance tax scale.

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Frequently Asked Questions About Life Insurance Benefits

What are the benefits of life insurance?

Life insurance provides many advantages, including easy transmission, reduced taxation, available capital and quite simply the possibility of saving without constraint.

Does life insurance make money?

It depends on the media chosen. The fund in euros has a low but guaranteed return. Unit-Linked can bring huge returns but expose you to a high risk of losses. A diversified allocation adapted to your profile is recommended.

Why not close life insurance?

There is no limit to the number of life policies you can own, so there is no obligation to close a life policy. In addition, life insurance has a maximum tax advantage from 8 years of seniority. It may therefore be interesting to keep “dormant” life insurance with the minimum funds on it in case of need.

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