What are the benefits of life insurance?

life insurance

Life insurance, France’s favorite investment, continues to attract savers, regardless of their profiles, the amounts paid or their objectives. Life insurance indeed has many advantages, which do not stop only at its tax framework. What are the benefits of life insurance? What is its tax? How is it an excellent savings medium? We tell you everything.

Life insurance is a tax envelope

Life insurance can be seen as an envelope: the money you invest in it can be invested in many media. There are two types of life insurance:

  • The mono-support contract  : the entire capital is positioned on a secure fund: the fund in euros . This safe investment generates interest each year, and the risk of loss is nil: the value of your contract is guaranteed by the insurer.
  • The multi-support contract  : part of your money is placed in the € fund, and another is invested in riskier products but with higher earning potential: units of account . There is a wide variety of mediums available, allowing you to access the financial and/or real estate markets.

The choice of one or the other, as well as the vehicles in which your savings will be positioned, will depend on many factors, such as your risk profile, your objectives in terms of profitability, your age, your degree of knowledge of markets…

Even if they can potentially be more profitable, units of account are risky products. The capital invested, for example, in SCPI shares will not be guaranteed by the institution with which you took out your life insurance.

Life insurance has a good rate of return

Despite a context of falling interest rates for years, the euro life insurance fund remains, on average, a more attractive investment than other secure products (such as Livret A, Livret de développement durable or PEL, etc.).

The average rate of return observed in 2020 was, according to the French Insurance Federation, 1.10%.

However, not all euro funds are created equal. Traditional banks and insurers are generally struggling to serve more than 1.5%, where some institutions have still exceeded 3% net of fees this year.

Life insurance is also suitable for investors willing to take risks with a view to profitability. Some units of account are more risky than others. For example, stone-paper funds (that is to say in “liquid” real estate) generally generate good returns for a measured level of risk.

To find a life insurance contract with a good level of performance, consult the rankings published annually or, even simpler, use our online life insurance comparator!

Life insurance is a flexible savings contract

Contrary to what is often thought, savings are not blocked in life insurance. The capital (and capitalized interest) remains available at all times. For example, if you need cash for a specific project, you can make a redemption request:

  • Partial  : you only recover part of the value of your contract,
  • Total  : you recover all of it but you lose the tax precedence of your contract.

Life insurance also allows you progressive capitalization: you pay one-off or regular premiums at your convenience. If you need money but do not want to touch the capital invested in the contract, you can request an advance from the insurer.

Several modes of settlement of the contract are also possible. It could be for example:

  • From a capital outflow,
  • A life annuity exit (your capital is then transformed into an annuity, according to its surrender value),
  • An exit in the event of death, that is to say the transmission of the capital (or an annuity) to the beneficiary(ies) you have designated.

The subscription is also possible for two: we then speak of life insurance in co-membership . The main advantage of joint subscription is that you can determine who will receive the capital in the event of death (settlement on the 1st or 2nd death).

Finally, if you wish to improve the profitability of your contract by investing in units of account , but you are not an expert in the matter, you will have the choice between several modes (and options) for managing your life insurance (your assets ). A manager will then make the investment choices for you.

You can very well have several life insurance contracts. This will probably have an interest in terms of performance (some old contracts are no longer profitable), but none in terms of tax.

Life insurance enjoys preferential taxation on redemptions

Life insurance benefits from strong tax advantages in the event of surrender. First of all, be aware that when you make a withdrawal (partial or total), it is made up of a capital part and an interest part. The tax base will only consist of interest: the part of capital withdrawn will never be taxed.

The applicable taxation 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 under your income tax), you will benefit from an annual allowance on the interest generated by your contract (€4,600 per year for a single person and €9,200 for a couple).

Life insurance makes it possible to transmit capital outside the estate

When you take out life insurance, you are asked to designate one or more beneficiary(ies), natural or legal person(s). You can name (almost) whoever you want: spouse, friend, nephew, association, minor child, person with a disability….

On death, the capital will be passed on to the person chosen under very favorable tax conditions: in fact, life insurance is excluding inheritance , for the part of the premiums paid before the age of 70. Each beneficiary will enjoy an individual allowance on the sums received, and beyond that, the tax rate will remain very favorable.

The allowance is €152,500 per designated beneficiary (capital and interest included), all policies combined. Beyond that, there will be 2 levels of taxation depending on the size of the sum transmitted.

This allows you, for example, to favor a friend, who will benefit from an abatement and reasonable taxation beyond this abatement, when he would normally have been taxed, based on the inheritance tax scale, at 60%. !

You can specify, in the beneficiary clause, an obligation of “reinvestment” : the person will then receive the capital on your death, it being up to him to do with it what you wished during your lifetime (maintain the house for example).

From 152,501 to 852,500 eurosAbove 852,500 euros

Taxation after deduction of 152,500 euros 20% 31.25%

Beneficiary taxation upon transfer – premiums paid before age 70

As you can see, life insurance allows you, for the fraction of the premiums paid before your 70th birthday, to optimize the transmission of part of your assets, which will be treated outside of inheritance.

Capital transfer allowance for the portion of premiums paid after age 70

On the death of the insured, the part of the premiums paid after his 70th birthday will reintegrate the estate , after deduction. Life insurance will then not be treated separately, unlike the fraction of payments made before age 70.

Even if this may appear to be a disadvantage in terms of estate optimization, an overall allowance (shared between all the designated beneficiaries) of €30,500 is still provided.

Contracts with a value lower than this sum and for which the premiums have been paid beyond 70 years will therefore be exempt when the capital is transferred to the beneficiary(ies). For contracts over €30,500, the portion exceeding the allowance will be taxed as inheritance tax, according to the scale in force (and which depends on the degree of kinship linking the heir/beneficiary to the deceased)

By Master James

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