Principle of life insurance
Life insurance is a contract by which the insurer undertakes, in return for the payment of premiums, to pay an annuity or capital to the insured or his beneficiaries. It can be used as a medium or long-term savings product.
At the end of the contract, the insured or his beneficiaries can recover the sums invested, increased by any gains, and reduced by the costs (in particular of administration and management).
After opening the contract with an initial payment, it is possible to make payments, regular or not, with no limit on the amount. Even if it is fiscally more attractive to save for at least 8 years, you have the right to close your contract or make withdrawals at any time.
The main types of contracts
Mono-support contracts in euros
Your payments are invested in risk-free products, such as government bonds, and reset each year. The capital invested is guaranteed at all times and the interest for the year is definitively acquired.
Your payments are invested in risk-free products but also products linked to the stock market ( bonds, shares, funds, Sicav, etc.), invested in the financial markets, called units of account (UC). The insurer does not guarantee the value of these units, which varies, but their number. This investment is riskier than funds in euros but it can be more profitable.
The benefits of life insurance
Life insurance offers many benefits.
It allows you to build up capital over the long term. After a few years, you can withdraw your capital, ie close your contract and withdraw the money deposited, plus net interest. Warning! You are not guaranteed to get back your entire bet if you invest in units of account (UC).
It also offers the possibility of supplementing your income, in particular for retirement, by regular withdrawals or the transformation of your capital into a life annuity.
Finally, life insurance is an excellent tool for transmitting assets thanks to advantageous taxation and great freedom in the choice of beneficiaries.
Life insurance: what taxation?
Interest from payments made since September 27, 2017, on your life insurance policy is subject to the single flat-rate deduction (PFU).
The single flat-rate debit (PFU) occurs during the partial or total withdrawal of the sums available on your life insurance contract.
For a withdrawal from a life insurance contract occurring 8 years after its opening, the single flat-rate deduction amounts to 7.5% for sums paid below €150,000.
For a withdrawal from a life insurance contract occurring less than 8 years after its opening, the single flat-rate deduction amounts to 12.8%.
Finally, to the single fixed levy (PFU) is added 17.2% of social levies.
Interest from payments made before September 27, 2017, remains subject to the tax regime preceding the introduction of the single flat-rate levy:
- for a contract less than 8 years old: interest is subject by default to the progressive scale of income tax or, optionally, to the flat-rate withholding tax (PFL) amounting to 35% before 4 years and 15% between 4 and 8 years old.
- for a contract of more than 8 years: the interest is subject by default to the progressive scale of income tax or, optionally, to the fixed levy in discharge (PFL) amounting to 7.5%.
What taxation for heirs?
At the time of the death of the subscriber of the life insurance, the sums paid to the beneficiary of the contract do not form part of the estate of the deceased.
If the beneficiary of your contract is your spouse or PACS partner, he will not be liable for any inheritance tax, even if you have funded your contract after 70 years.
For the other beneficiaries, the tax treatment varies according to the age of the insured when the premiums are paid:
- for sums paid before age 70: after application of the allowance of €152,500 per beneficiary, the capital is taxed at 20% for the taxable part of each beneficiary.
- for amounts paid after age 70: a single allowance of €30,500 applies regardless of the number of beneficiaries. Beyond that, the capital paid is reintegrated into the estate assets. However, capitalized interest is exempt.
Who to subscribe to?
The contract, managed by an insurer, can be taken out with an agent or broker, but also through your bank or savings associations.
The duty to advise
The insurer is required to inform you of the characteristics of the products it sells to you. Since 2010, as for any other financial product, the intermediary who markets life insurance must inquire about your objectives and sell you a product adapted to your needs.