life insurance
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What is life insurance?

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Definition

Life insurance is a savings product managed by an insurance company where you choose the level and rhythm of your payments. It aims to build you up and grow your capital to carry out your projects.

What differentiates life insurance from other investments is that it allows you, in addition, to protect your loved ones whom you have designated as beneficiaries: in the event of death, they receive the sums you have saved, valued according to the terms of the contract, at very favorable tax conditions.

However, be careful not to confuse life insurance and death insurance. The life insurance is an investment: the savings on the contract, uprated are paid to the beneficiary in case of death. In the case of death insurance , you choose in advance the level of capital that will be paid to the beneficiaries and you pay a contribution in return.

Why take out a life insurance policy?

Life insurance is suitable for multiple purposes.

It can be a way to save for a project: pay for your children’s studies, prepare for a big trip or a sabbatical, save for a future real estate purchase or finance work … Or quite simply to build up gradually a capital. A specific goal is not mandatory!

Life insurance is nevertheless frequently taken out with a view to preparing for retirement, due to its great flexibility and its tax advantages:

flexibility during the build-up phase of your savings,

and flexibility also on the terms of exit.

You can recover your savings either in the form of capital or in the form of an annuity and thus build up additional income for life. A study by Ipsos and the  Savings Circle confirmed this in March 2019: 44 % of working people believe that life insurance is the best savings product to prepare for retirement.

You can finally use life insurance to protect the future of your loved ones. Indeed, the valued capital is transmitted under very advantageous tax conditions, compared to inheritance transmission, which makes it a tool for transmitting wealth.

All these objectives are compatible: you can save to prepare for a project or for your retirement, while financially protecting your loved ones in the event of death. And the capital is always available when needed (subject to the agreement of the accepting beneficiary). In addition, in the event of unforeseen events (dismissal, early retirement, invalidity, cessation of self-employed activity following a court-ordered liquidation judgment), redemptions made under the contract are exempt from income tax.

Advantageous taxation

Life insurance benefits from a tax regime which remains very advantageous . The Pacte law has also opened up the possibility of transferring the assets of your current life insurance contracts to other contracts (more recent and often more profitable) with the same insurer. The transfer can be total or partial. The real interest lies in keeping the tax precedence attached to the initial contract. This operation will not be considered as the closing of the current contract for the subscription of a new one.

Taxation on departures

Life insurance contracts are not subject to income tax, as long as you do not surrender your contract.

Taxation on redemptions

It applies when you recover all or part of your invested savings in the form of capital. Since the introduction of the Flat Tax, it depends on the date on which you made your payments.

For contracts opened since September 27, 2017, the tax rate is 30  % for contracts less than 8 years old ( 17.2  % social security contributions + 12.8  % non-discharging flat-rate deduction). After 8 years, the levy from 30  % to 24.7  % ( 17.2  % social contributions + 7.5  % flat rate withholding not) on the part of the lower capital 150  000  €, and you benefit from annual reductions.

Note: each redemption involves a share of capital and a share of interest. The rate only applies to redeemed interest. Example: you hold a contract 100  000  €. You buy back €  10,000  on your contract. If these €  10,000  are made up of €  8,000  in capital and €  2,000  in interest, the rate only applies to the €  2,000  . The tax would therefore amount to  2,000 x 30  % =  € 600 (which, compared to €  10,000, now  only represents 6  %).

Taxation on annuities

You can choose to convert the capital saved into a life annuity.

You will then receive additional income paid for life.

In this case, the annuity is only partially taxed. Financial products acquired before conversion into an annuity are exempt from income tax, but subject to social  security contributions at the rate of 17.2 % for the share of products which have not already supported them.

During the payment of the annuity, it is subject to income tax and social security contributions for a fraction of its amount, determined according to the age of the annuitant. The older you are when you start collecting it, the greater the tax benefit.

Taxation in the event of death

In the event of death, the capital of the life insurance is transferred to the beneficiaries designated on the contract. The capital constituted is totally exempt from taxation if the chosen beneficiary is your spouse or your Pacsé partner.

The capital saved before your 70th birthday is also exempt up to 152,500  euros per beneficiary, all contracts combined.

A 20  % levy is applicable for the portion due to each beneficiary between 152,500  euros and 852,500  euros, and of 31.25  % for the portion due to each beneficiary exceeding 852,500  euros.

The capital corresponding to payments after your 70 th birthday (the products are exempt) are subject to the scale of inheritance tax after abatement of 30  500 euros (all life insurance policies and of all beneficiaries).

Solidarity tax on real estate wealth (IFI)

The cash value of life insurance contracts expressed in units of account at 1 st January of the tax year is included in the heritage of the subscriber / member level with the representative fraction of taxable property assets backed by units account.

However, only the fraction of the representative value of the real estate assets of units of account composed of more than 20  % of real estate falling within the scope of the IFI is to be retained on the condition that the subscriber / member alone and, if necessary jointly with the persons of his tax household do not hold more than 10  % of the UCI or the investment fund containing the real estate assets.

In addition, SIICs held at less than 5  % of the capital or voting rights by the subscriber / member and by other members of the tax household are not to be taken into account under real estate assets.

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