What is the benefit of insurance?
Life insurance, the preferred investment of the French, continues to attract savers, whatever their profiles, the amounts paid, or their objectives. It is true that life insurance has a number of advantages, which do not stop only at its fiscal framework. What are the interests of life insurance? What is its taxation? How is this an excellent savings vehicle? We tell you everything.
- Life insurance is a tax envelope
- Life insurance has a good rate of return
- What is the benefit of insurance
- Life insurance is a flexible savings contract
- The deduction on the transmission of capital for the portion of premiums paid after 70 years
- Life insurance benefits from preferential taxation on redemptions
- Life insurance allows capital to be transferred outside of inheritance
What is the benefit of insurance?
Life insurance is a tax envelope.
Life insurance can be seen as an envelope: the money you put in it can be invested in many ways. There are also two types of life insurance:
- The mono support contract: the entire capital is positioned in a secure fund: the fund in USD. This secure investment generates interest each year, and the risk of loss is zero: 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 potential for remuneration: units of account. A wide variety of media is available, allowing you to access the financial and real estate markets.
The choice of one or the other, as well as the vehicles on which your savings will position, 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 though they can potentially be more profitable, unit-linked products are risky. The capital invested, for example, in SCPI shares will not be guaranteed by the establishment with which you have subscribed to 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 security products (such as Livret A, Livret de développement durable or PEL, etc.).
According to the French Insurance Federation, the average rate of return observed in 2020 was 1.10%.
However, not all euro funds are created equal. Traditional banks and insurers are generally struggling to serve more than 1.5%, whereas some institutions have exceeded 3% net fees this year.
Average profitability of Usd funds over 3, 5 and 8 years:
|Capital||Average performance over 3 years||The Average performance over 5 years||Average performance over 8 years|
|Usd fund (rather efficient)||8%||15%||25%|
Life insurance is also suitable for investors willing to take risks with a view to profitability. Some units of account are riskier than others. For example, funds from stone-paper (i.e. “liquid” real estate) generally generate good returns for a measured risk rate.
To find a life insurance contract with a good level of return, consult the rankings published annually or, even simpler, use our online life insurance comparator!
Life insurance is a flexible savings contract.
Contrary to popular belief, savings are not blocked in life insurance. The capital (and capitalized interest) remains available at all times. If, for example, you need cash for a specific project, you can proceed with a buyback request:
- Partial: you only get back part of the value of your contract,
- Total: you recover all of it, but you lose the tax priority 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 methods of terminating the contract are also possible. It could be for example:
- From a capital exit,
- From an exit into a life annuity (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 that you have designated
The subscription is also possible for two: co-membership life insurance. The main advantage of the 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 want 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. It will probably have a yield interest (some old contracts are not profitable anymore), but none from a tax standpoint.
Life insurance benefits from preferential taxation on redemptions
Life insurance benefits from strong tax advantages in the event of redemption: First of all, know that when you make a withdrawal (partial or total), it is made up of a share of capital and a share of interest. The taxable base will only consist of interest: the share of capital withdrawn will never be taxed.
The applicable tax will depend on the age of your contract and when paid the premiums. The fiscal framework is optimal after eight years: in addition to a reduced tax rate (as an alternative to taxation for 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).
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Taxation depending on whether making the payments before September 2017 or after:
|Contract of less than 4 years||IR or PFL 35% (+ PS 17.2%)||IR or PFU 12.8% (+ PS 17.2%)|
|Contract between 4 and 8 years||IR or PFL 15% (+ PS 17.2%)||IR or PFU 12.8% (+ PS 17.2%)|
|Contract of more than 8 years||After deduction, IR or PFL 7.5% (+ PS 17.2%)||After deduction, IR or PFU 7.5% for the portion of premiums <€ 150,000 and PFU 12.8% beyond (+ PS 17.2%)|
IR = Income tax / PS = Social security contributions
Since the introduction of the PFU (the flat tax) for premiums paid after September 2017, life insurance is even more attractive, even before eight years. For example, the total levy will, for example, between 0 and 4 years, be 30% (PFU 12.8% + social security contributions 17.2%). The PFL rate, for premiums paid before September 2017, is in this example 52.2% (35% + 17.2% social security contributions).
Very often, especially if your contract is more than eight years old, the PFL or PFU (after deduction) will be more interesting than the reintegration of interest in your income (since the taxation is only 7.5%!).
Certain old contracts are even more advantageous: redemption will be possible with a total tax exemption for the portion of premiums paid before September 25, 1997.
Non-residents must opt for the lump sum deduction and not benefit from the reduction after eight years.
Life insurance allows capital to be transferred outside of inheritance.
When you take out life insurance, you are asked to designate one or more beneficiaries (ies), a natural person (s) or legal entity (s). You can name (almost) whoever you want: spouse, friend, nephew, association, minor child, a person with a disability.
On death, the capital will be transferred to the chosen person under very favourable tax conditions: in fact, life insurance excludes inheritance for the portion of premiums paid before age 70. Each beneficiary will enjoy an individual allowance on the sums received, and beyond that, the tax rate will remain very favourable.
All contracts combined, the allowance is € 152,500 per designated beneficiary (capital and interest included). Beyond that, there will be two levels of taxation depending on the size of the amount transmitted.
It allows you, for example, to favour a friend, who will benefit from an allowance and reasonable taxation beyond this allowance, when he would normally have been taxed, based on the inheritance tax scale, at 60%.
In the beneficiary clause, you can specify a “reinvestment” obligation: the person will then receive the capital on your death on the condition of doing what you wanted during your lifetime (maintaining the house, for example).
From 152,501 to 852,500 euros
|Beyond 852,500 euros|
|Taxation after deduction of 152,500 euros||20%||31.25%|
Taxation of the beneficiary during transmission – premiums paid before age 70
As you can see, life insurance allows you, for a fraction of the premiums paid before your 70th birthday, to optimize the transmission of part of your assets, which will be treated apart from inheritance.
The deduction on the transmission of capital for the portion of premiums paid after 70 years
On the insured’s death, the portion of the premiums paid after the age of 70 will return to the estate after deduction. Life insurance will not be treated separately, unlike the fraction of payments made before age 70.
Even if this may appear to be a drawback in terms of estate optimization, a global allowance (shared between all the designated beneficiaries) of € 30,500 is still planned.
Contracts with a value lower than this sum and for which the premiums have been paid after the age of 70 will 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 (depends on the degree of kinship linking the heir/beneficiary to the deceased).
|Premiums paid after the insured’s 70th birthday||€ 30,500||Schedule of inheritance tax|
Taxation of the beneficiary during transmission – premiums paid after 70 years
What is the benefit of insurance