Why take out life insurance?

Do you need life insurance and why?

Life insurance is often considered the preferred investment of the French, thanks to its favorable tax framework and the financial possibilities it offers.

Related reading : Why choose wage portage?

It is a long-term savings product that provides better returns than some more conventional products and can also serve many purposes.

But what is a life insurance contract, why buy one, and how does it work? We will discover this in this article.

Further reading : Why buy fencing?

How does life insurance work?

As its name suggests, it is a life insurance contract: the insurer must return the capital at the end of the contract, along with interest, to the policyholder in case of survival, or to the beneficiaries upon the death of the insured.

When opening a life insurance contract, an amount is placed in a multi-support contract either in a euro fund (capital guaranteed by the company) or in the form of units of account placed in the stock market (and thus subject to its fluctuations).

Anyone can hold as many life insurance contracts as they wish for a given period.

The funds remain available, but capital gains from withdrawals are taxed at that time. Premiums or payments can be made as a lump sum, multiple times (on a one-off basis), or regularly (monthly, for example).

At the end of the contract, the insured can withdraw all their capital, take it in installments, or in the form of a life annuity (an annuity will be paid to the insured until their death).

The beneficiary of the life insurance contract can be a person clearly designated in the contract or direct heirs (family members). The life insurance contract thus allows for the modification of the distribution of assets when naming a specific beneficiary.

The various events in the life of the product are subject to fees charged by the insurer. These costs may concern the opening of the contract, payment costs, management actions, and transfers between different funds.

In the event of the insured’s death and if there is a clearly designated beneficiary, two situations must be distinguished:

For premiums paid before the insured reaches the age of 70, the funds received by the beneficiary are exempt up to €152,500. Beyond that, they will be taxed at 20% up to €852,500 and 31.25% beyond.
Once the insured reaches the age of 70, only premiums exceeding €30,500 (for all contracts) are taxed on inheritance rights. Therefore, the interest is exempt, which provides an additional advantage.

In the event of the insured’s death, if no specific heir has been determined, the capital resulting from the life insurance contract is part of the estate and is therefore taxable under the usual inheritance conditions.

What can life insurance bring you today?

Life insurance is a contract that primarily allows for an attractive financial investment (the return on investment is generally around 2% for risk-free placements). The initial amount can be minimal (on the order of a few dozen euros) or much more substantial. As mentioned earlier, the life insurance contract is financially advantageous and very comprehensive, but it can sometimes be quite complex.

But why choose a life insurance contract to build capital or transfer wealth? For tax reasons, of course. But also to regain flexibility in organizing one’s estate, as the amounts placed in a contract can be passed on to the person of one’s choice.

The main advantage of investing through a life insurance policy lies in the fact that only realized capital gains are subject to income tax and social contributions.

This contract allows you to pursue two objectives:

► The creation of long-term savings through premium payments

► The transfer of capital: the death of the subscriber triggers the transfer of capital to the beneficiaries.

Life insurance is a particularly attractive and relevant tool when it comes to building long-term capital. It allows you to invest in a euro fund (low yield and low risk) or in media expressed in Unit Accounts (UC), which is more rewarding but riskier. Thanks to the diversity of available media, the subscriber can invest according to their risk profile and investment horizon.

The advantage of the life insurance contract also lies in the taxation of products (capital gains and interest). The products are only subject to taxation in the event of partial or total withdrawal. However, social contributions (17.2%) apply annually to the interest of the euro fund. Furthermore, the applicable taxation depends on the duration of the contract: In the case of redemption of premiums paid before 27/09/2017, the income generated is taxable at the progressive income tax scale or the flat-rate withholding tax. In this case, the flat rate is 35% if the contract is less than 4 years old, 15% if it is between 4 and 8 years old, and 7.5% if it is more than 8 years old (to which is added in this last case a reduction of €4,600 for a single person or €9,200 for a couple).

For premiums paid since 27/09/2017, between 0 and 8 years and except for a global taxation option on the scale, the products will be taxed at 12.8%. More than 8 years, proportionally to premiums under €150,000, taxed at 7.5% and 12.8% above €150,000.

The redeemed products will also be subject to social contributions for those not paid by the water.

Moreover, the invested sums are not frozen. A partial or complete redemption (withdrawal) can be made at any time. Additionally, a partial redemption does not lead to the termination of the contract.

Life insurance, in high demand after retirement

If you have ever thought about purchasing an investment product to supplement your retirement, you may have heard or considered taking out life insurance.

This investment is highly valued by French retirees who wish to organize their estate and protect their loved ones. In fact, at retirement, needs change and expenses vary. Leisure, health, and well-being expenses may play a more significant role in your budget, while some expenses may decrease or disappear, such as mortgage repayments, funding for education, leisure, and education for children… your retirement budget should be defined precisely to determine the savings that need to be put in place by then. Are you far from retirement and want an estimate of your pension? look here for our retirement benefits.

The amounts invested in your life insurance will automatically revert to your beneficiary, if your clause is well drafted, with a tax that is much more advantageous for them than in the context of a traditional inheritance.

With this product, you set aside money with a medium- to long-term savings perspective. Unlike an insurance or retirement contract that guarantees you against a risk, with life insurance, you put money aside to recover the investment with interest at the end of the contract. This money will then be available either at the end of the contract or in the event of death. It is a good way to prepare capital for retirement and ensure funds for your family in case of death.

Going further: life insurance in Luxembourg

Are you convinced of the advantages of life insurance like the millions of French people who already have a contract? you do not want your money to be entrusted to one of the French companies that hold the €2,500 billion, you are right, French life insurance is not without its flaws, particularly regarding the risks posed by the Sapin2 law on your deposits (life insurance in France can be blocked for the necessary time in case of state default, particularly in terms of debt, to restore a stabilized economic situation).

Expatriate? Retired? Security triangle? why a contract in Luxembourg will be much better than a French contract…

Check out our complete file on life insurance in Luxembourg and discover its many advantages here

Our retirement assistance services

Comprehensive retirement assistance for your retirement, pension calculations, assessments, liquidation: instruction, correction, and validation with funds, calculations and arbitration, pension liquidation. EOR Consultants is your single point of contact for all the organizations you need to contact to process your file. With the experience and expertise of our retirement advisors, retirement becomes simple. Verification and assessment of retirement intervention and fund corrections by mandate, various calculations and optimization of pensions, our flagship and turnkey service for 25 years. A consultant at your service. Details and rates Pension liquidation Processing your retirement by mandate, rating your career file and monitoring your rights until pension payments are made. Details and pricing Retirement calculation and simulation Simulations and calculations based on your individual situation or indicative overall estimate based on salary parameters, buybacks, and/or end of career. Details and rates Retirement consultation Meeting with a retirement advisor who answers your questions, tells you what they see on your career statement, assesses your pension, your retirement age, and guides you. Details and pricing