What is the limit for life insurance?
The term “limit” in life insurance can refer to the maximum amount that can withdraw without taxation or the highest amount that can transfer in an exempt manner. Thus, with a view to tax optimization, it is important to know these ceilings and the various allowances provided. What are the different ceilings related to life insurance? Is there a payment limit? Can your earnings be capped? Answers!
- What is the payment limit for life insurance?
- Is interest capped in life insurance?
- What is the tax-free surrender limit for premiums paid before September 27, 2017?
- What is the tax-free surrender limit for premiums paid after September 27, 2017?
- Life insurance premiums paid before age 70; is there an exemption limit?
- What are the ceilings for old life insurance contracts?
- Life insurance premiums paid after age 70, is there an exemption limit?
- What is an exaggerated premium in life insurance?
What is the payment limit for life insurance?
You are not limited by any payment limit when entering life insurance. The minimum premium to be paid is around € 100. Throughout the life of the life insurance, you will be able to increase the capital by paying regular or one-off premiums without an annual payment limit. Please note, the absence of a ceiling does not mean that the tax benefit is unlimited!
In life insurance, you have different solutions to invest your capital:
- Only on a secure and guaranteed fund: the euro fund (this is referred to as a single-support life insurance contract );
- Partly on the fund in euros and partly in units of account, that is to say on more complex products (equities, mutual funds, etc.) but with greater potential for profitability (this is about ‘a multi-carrier life insurance contract );
- You can also invest all of your savings in units of account (UC) to yield, even if this will be riskier.
If the payment ceiling is often free, some life insurance policies require a minimum contribution at the opening. To compare offers and, above all, to choose the best rate for your life insurance, use our online simulator. 100% free, we compare the best life insurances of the moment.
Is interest capped in life insurance?
If all or part of your capital is placed in the fund in euros, that is to say, the investment secured and guaranteed by the insurer (or the institution that holds the contract), you will receive interest each year.
In theory, interest is not capped: it depends on the performance of the euro life insurance fund. However, they will very rarely be greater than 2.5% for the best contracts in practice.
If part of your capital is invested in UC, also called life insurance units of account (in shares, in mutual funds, in SCPI shares, etc.), we will rather speak of return, that is to say, say gains, capital gains… It will not cap, either upward or (in general) downward. Your gains or losses will depend on the performance of the media in which your money is invested.
Life insurance yield (in euro funds and unit-linked funds) expected in 2021:
|Minimum return||Maximum yield|
|Multi-support contract||According to media performance in CPU||According to media performance in CPU|
2021 life insurance performance
The rate of return in a unit of account may be higher than that of the euro fund but also negative due to the volatility of the financial markets. You could end up with a cash value lower than the payments made.
What is the tax-free surrender limit for premiums paid before September 27, 2017?
Since the Macron reform, the taxation of life insurance redemptions will be different depending on whether the withdrawal relates to payments made before September 27, 2017, or after.
When you make a withdrawal in life insurance, only the part corresponding to the interest generated is taxed. The share of capital will not be. Concretely, for a buyback of € 1,000, broken down into € 900 of capital / € 100 of interest, the tax base will be € 100.
There is no withdrawal limit (apart from, of course, the value of your contract).
If your contract is more than eight years old, you will benefit from a reduction of € 4,600 per year on the interest portion you withdraw from the year (ceiling increased to € 9,200 for a couple).
If, for example, your interest represents 20% of the redemption, you can then withdraw up to € 18,400, totally exempt (€ 4,600 in interest + € 13,800 in the capital).
Limit of the tax allowance after 8 years of life insurance:
|For a single person||For a couple|
|The ceiling of the tax allowance after 8 years||€ 4,600 (on interest)||€ 9,200 (on interest)|
This reduction ceiling is recharged every year. You will thus be able to build up regular additional income, for example, for your retirement, by opting for programmed partial redemptions.
Before eight years, your redemption will still be taxed on the interest generated, but you will not have any deduction. It is important to open life insurance early to benefit from its seniority over time and quickly reach eight years.
For contracts of less than eight years, you can opt for taxation on income tax (IR) or a lump-sum deduction (PFL), which will add to the social security contributions of 17.20%.
Taxation of life insurance redemptions for payments before September 2017:
|Income tax (default)||Lump-sum discharge ceiling|
|Contract of less than 4 years||According to tax bracket + 17.20%||35% + 17.20%|
|Contract between 4 and 8 years||According to tax bracket + 17.20%||15% + 17.20%|
|Contract of more than 8 years||According to tax bracket + 17.20%, after deduction||7.5% + 17.20% after deduction|
What is the tax-free surrender limit for premiums paid after September 27, 2017?
The 2018 finance law lays down new tax rules for redemptions corresponding to premiums paid after September 27, 2017.
You can still opt for taxation of your interest under income tax (IR). Still, the alternative will no longer be the PFL (Lump sum discharge) but the PFU (Single fixed ceiling), corresponding to a rate of 12.8%, which are added social security contributions of 17.2%.
Taxation of life insurance redemptions for payments after September 2017:
|Payments of less than 150,000 euros||Share of payments over 150,000 euros|
|Contract of less than 4 years||IR or PFU 12.8% + 17.20%||IR or PFU 12.8% + 17.20%|
|Contract between 4 and 8 years||IR or PFU 12.8% + + 17.20%||IR or PFU 12.8% + + 17.20%|
|Contract of more than 8 years||After deduction, IR or PFU 7.5% + 17.20%||After deduction, IR or PFU 12.8% + 17.20%|
For a contract of more than eight years, you will still benefit from the reduction of € 4,600, allowing you to withdraw a capped amount each year without paying any euro to the Tax Department.
This finance law also sets a new ceiling for more than eight years of contracts: beyond the tax deduction, the interest corresponding to the “first” 150,000 euros paid on your contract will be taxed at a preferential rate of 7, 5%. Interest generated by capital exceeding this ceiling will be subject to the classic PFU rate of 12.8% (or income tax). This payment ceiling is raised to 300,000 euros for a couple.
If you want to withdraw a large sum from your life insurance under optimal conditions, you will therefore have to stay within this limit.
If your household’s taxable income does not exceed € 25,000 (or € 50,000 for a couple), you can ask to be exempt from PFU when your buyback.
Life insurance premiums paid before age 70; is there an exemption limit?
On the death of the subscriber, life insurance is treated separately: it does not reintegrate the deceased’s estate. Civilly and fiscally, it excludes inheritance on the condition that the premiums have been paid before the age of 70.
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Taxation and reduction of transmissions – premiums made before age 70:
|Allowance per beneficiary||20% tax||Taxation at 31.25%|
|For premiums paid before age 70||€ 152,500||From 152,501 € to 852,000 €||Share> 852,500 €|
Thus, if your life insurance contract has a value of less than € 152,500 at the time of death, the capital will be transferred to your beneficiary (ies) without any tax if paid the premiums before your 70th birthday.
The same applies if, for example, your life insurance is worth less than € 305,000, but you have designated two beneficiaries equally.
It is explained: each person designated by you can receive up to € 152,500 (in capital and interest) to remain within the total exemption from inheritance tax. This ceiling is, in fact, a tax allowance applicable as many times as there are the beneficiary (ies), even if you designate a third party or someone with a weak family tie.
If a beneficiary receives more than 152,500 €, the spare part will puncture based on a flat rate which does not depend on the scale of inheritance tax.
Life insurance premiums paid after age 70, is there an exemption limit?
If you have paid premiums (or part of the premiums) on your life insurance contract after your 70th birthday, be aware that the tax rules on transmission will be less attractive than those concerning payments made before this age.
Concretely, on death, the capital corresponding to the premiums paid after 70 years will reintegrate the inheritance (and will be subject to inheritance tax ) after an overall allowance of € 30,500, regardless of the number of contracts you hold and the number of designated beneficiaries.
The reduction (the non-taxable ceiling) of € 30,500 relates here only to the share of capital, that is to say, the payments made. Gains are exempt and do not enter the taxable base.
Thus, if your life insurance contract funded after 70 years does not exceed the inheritance ceiling of € 30,500, the capital will be exempt when it is transmitted to the beneficiary (ies). Beyond that, each beneficiary will be taxed on the amount received according to the applicable inheritance tax.
Taxation and reduction of transmissions – premiums made after 70 years:
|Global allowance||Taxation of the portion exceeding the allowance|
|Premiums paid after age 70||€ 30,500||Schedule of inheritance tax|
What are the ceilings for old life insurance contracts?
Some life insurance policies opened a long time ago have no ceiling limiting their tax benefits! Whether in terms of redemption or capital transmission, these contracts are excessively favourable from a tax standpoint.
Regarding the taxation in the event of redemption, you can make an exempt withdrawal, with no limit, if your life insurance:
- Has been opened before 1 st January 1983
- It was open after but made the payments before September 25, 1997.
There will also be no limit to the amount you can transmit in total exemption if your contract was open before November 20, 1991, funded before October 13, 1998, or subscribed after November 20, 1991. Still, the premiums have were paid before you turned 70 and before October 12, 1998.
It should understand that only redemptions corresponding to payments made before September 1997 will be exempt. If, for example, you pay € 10,000 today on such a contract, you will be subject to the current taxation on interest (income tax or PFU).
What is an exaggerated premium in life insurance?
Even if there is no ceiling on payments on your life insurance contract, the premiums can be reclassified, in the event of legal action, from “manifestly excessive” by a magistrate, based on Article L132-13 of the Insurance Code.
The claim can, for example, come, after the death of the insured (and therefore when the life insurance is unwound), from an heir who feels aggrieved concerning his hereditary reserve, that is to say, the rightful share of the inheritance.
The action can never come from a notary or an insurer. It will always be up to an heir to initiate the action.
The reserved heirs (in the first place, the children) necessarily benefit from part of the succession. However, life insurance is treated separately (for premiums paid before age 70). You might be tempted to pay a very large part of your assets into it to avoid these civil rules.
Life insurance should not use to circumvent tax and inheritance rules, such as by trying to disinherit a child, favour one over another, or empty his estate for the benefit of a third party.
If legal action is brought following the death of the subscriber, the judge, if he decides that the premiums are indeed clearly exaggerated, may order reinstatement in the estate, especially if the hereditary reserve has been infringed.
The magistrate will base this on a set of clues, such as:
- The importance of the premiums paid given the financial means of the deceased,
- The age at which the insured paid the premiums (if, for example, he transferred a large part of his assets to life insurance),
- The policyholder’s state of health at the time he paid the premiums
What is the payment limit for life insurance?
There is no cap on payments on life insurance. In practice, some insurers impose thresholds on the premiums paid into the euro fund. Therefore, it is essential to compare the offers so as not to be limited in your payments.
What is the € 152,500 limit for life insurance?
This amount corresponds to the amount you can transmit to a designated beneficiary without taxing the latter. This ceiling is individual. Thus, if you have € 305,000 in your life insurance (2 x € 152,500) and you have designated two beneficiaries on your life insurance contract, each of them will be able to receive € 152,500 upon your death without any tax is due to them.
What is the limit for life insurance?