But what is a life insurance contract, why take out one and how does it work? Let’s find out in this article
How does life insurance work?
As indicated in its name, it is a contract in the event of life: the insurer must return the capital at the end of the contract, together with interest, to the subscriber in the event of life, or to the beneficiaries at the time of death of the insured.
units of account placed on the stock exchange (and therefore subject to variations thereof).
Premiums or installments can be paid in one go, several times (on a one-off basis) or regularly (monthly for example).
At the end of the contract, the insured can withdraw all of his capital, take it in a fractional way or even in the form of a life annuity (an annuity will be paid to the insured until his death, an ideal complement to improve his retirement ).
The life insurance contract therefore makes it possible to modify the distribution of assets when a specific beneficiary is named.
These costs may relate to the opening of the contract, the costs during the payments, the acts of management, the arbitrations between the different funds.
In the event of the death of the insured and if there is a clearly named beneficiary, two situations should be distinguished:
For premiums paid before the insured turns 70, capital received by the beneficiary is exempt up to €152,500. Beyond that, they will be taxed at 20% up to €852,500 and 31.25% beyond.
After the insured turns 70 , only premiums exceeding €30,500 (for all contracts) are subject to inheritance tax. Interest is therefore exempt, which confers an additional advantage.
In the event that upon the death of the insured no specific heir has been determined, the capital from the life insurance contract is part of the estate and is therefore taxable under the usual conditions of the estate.
Life insurance is a contract which allows , above all, to carry out a more or less interesting financial investment according to the medium chosen (the remuneration of the investment is generally around 2% gross for risk-free investments, 5% gross for unit-linked investments).
The starting amount can be minimal (around a few tens of euros) or much larger (several million euros). As seen above, the life insurance contract is financially advantageous and very comprehensive, but it can sometimes be very complex ( as for example in Luxembourg where you can put very different assets and Private Equity ).
For example private equity for real estate development which yields and distributes 15 to 20%/year, shares of alternative monetary funds with distributed profitability of 10 to 15%/year , all these things that are very profitable but qualified as risky and reserved for well-informed investors).
For tax reasons, of course. But also to find flexibility in the organization of his succession since the sums placed on a contract can be transmitted to the person of his choice (and not only his heirs cf below).
The main advantage of investing in the form of a life insurance policy lies in the fact that only the capital gains realized are subject to income tax and social security contributions.
This contract allows you to pursue two objectives:
► The constitution of long-term savings through the payment of bonuses
► Transmission of capital: the death of the subscriber triggers the transmission of the capital to the beneficiaries.
It makes it possible to invest in a fund in euros (weak return-risk ratio) or in vehicles expressed in Units of Account (UA) which are more profitable but riskier. Thanks to the variety of vehicles available, subscribers can invest in accordance with their risk profile and investment horizon.
The advantage of the life insurance contract also lies in the taxation of the products (capital gains and interest). The products are subject to taxation only in the event of partial or total withdrawal. On the other hand, social security contributions (17.2%) apply annually to interest on the euro fund. In addition, the applicable taxation depends on the duration of the contract: In the event of redemption of premiums paid before 09/27/2017, the products obtained are taxable at the progressive scale of the IR or at the flat-rate deduction. 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, 7.5% if it is more than 8 years old (to which is added in the latter case an allowance of 4,600 euros for a single person or 9,200 euros for a couple).