What is a life insurance ?
Definition
Life insurance comes in the form of a contract signed with an insurer. You perform on this contract scheduled or free payments. The savings made are increased by plus-values obtained during the life of the contract. These sums can be withdrawn at any time, but without necessarily being able to benefit from the tax benefit which is linked to the length of detention. The exit can be done in capital Where an interest rate. The total amount of life insurance can also be passed on to the designated beneficiary after the death of the policyholder. Life insurance is therefore both a savings support and a provident contract.
The essential in brief
Advantages
- Free payments;
- flexibility of exit from contracts;
- funds available.
Exit from the contract
- Payment to the subscriber, in annuity capital;
- payment to the beneficiary (or beneficiaries) designated by the subscriber: in capital after the death of the subscriber
Key terms to discuss well with your banker or insurer
- The insured or the subscriber is the person who takes out the life insurance contract.
- The beneficiary is the person (or persons) designated as heirs to the capital of the life insurance in the event of the death of the subscriber.
- The initial payment is the amount allowing the opening of the contract.
- Additional payments designate amounts paid subsequently. These can be free installments or scheduled installments.
- Arbitration is the procedure by which the subscriber modifies the funds placed in units of account.
What is the life insurance success?
Life insurance, as we have said, is one of the favorite placements of the French and one of the most subscribed. This phenomenon can be explained by several reasons, among which flexibility and versatility contracts. Indeed, life insurance is both a savings investment, a solution for prepare for retirement and a method to take advantage of attractive tax conditions in the event of inheritance. Savings have a reputation for being secure, largely thanks to the euro compartment. The latter is generally supplemented by units of account to boost the profitability of the contract.
Life insurance for prepare for retirement
Life insurance replaces or supplements other retirement savings solutions, such as PER. When withdrawing from an annuity, the sums received each month are added to the payments from the pension funds. The retiree can therefore improve his daily life. It is therefore a retirement savings tool allowing build up capital thanks to regular or one-off payments. This capital increases over the years thanks to interest.
Unlike the various PER, whose withdrawal rules are strictly framed, life insurance allows you to invest capital that remains available and that the subscriber can withdraw at any time.
Life insurance in the part of a heritage strategy
Life insurance is also used as part of a wealth strategy, to prepare for the transfer of assets by allowing beneficiaries to benefit from a tax exemption on the capital they inherit. This exemption depends on the age of the subscriber at the time of the payments.
Conditions of subscription and holding life insurance
Now let’s see what are the subscription and holding conditions of your life insurance contract.
Conditions duration
| Free contracts | Fixed term contracts |
|---|---|
| No duration conditions | Between 8 and 20 years old |
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Costs related to life insurance contract
| Payment fees | Management fees | Arbitration fees |
|---|---|---|
| Between 0% and 5% depending on the terms of the contract and depending on the banks or insurers – on each payment.
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The fees on the installments are higher for contracts signed with a bank than by taking out the contract directly with the insurer.
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The different types of life insurance contracts
There are different types of life insurance contracts. Some are in euros, others in units of account. Most life insurance is mixed contracts, called multisupports, which combine the two previous forms.
Mono life insurance support in euros
- The capital is invested only in euro funds.
- Secured life insurance, the insurer reimburses at least the amount of the capital invested after deduction of costs (see above). This amount can be increased by interest.
Life insurance in euros secures the invested capital, but obviously does not protect against the risk of loss of purchasing power linked to inflation. In a low interest rate environment, the yield is low.
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Life insurance remuneration in euros: how is it calculated?
The remuneration paid by the insurer on mono-support life insurance in euros is calculated from two elements: the technical interest rate and the profit sharing of the insurer. These two criteria determine the interest you receive and the revaluation of your capital.
- Technical interest rate : 75% of the average rate on government bonds
- Benefits of the insurer (participation): paid each year. Amount modulated by the insurer, which thus compensates for years when performance is poor. Smoothing can be done over 8 years.
The return on euro funds is historically low, due to low interest rates. This is the reason why insurers are more willing to offer multi-vehicle contracts with unit-linked units.
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Multi-carrier life insurance including units of account
First of all, what do units of account ? These are stocks, bonds, UCITS or SCPI units. Some of these funds are riskier than others. But in all cases, taking out life insurance comprising units of account exposes the subscriber to vagaries of financial markets. Volatility is important with equities, it is less so with real estate investments, such as SCPI shares.
There are few life insurance contracts that are solely unit-linked. The most common contracts are said to be multi-vehicle, in the sense that they combine a fund in euros and units of account. The capital is invested partly in a guaranteed fund and partly in the financial markets. Depending on the percentage of the sum invested in units of account, life insurance has a more or less risky or prudent profile.
Thus, a life insurance type 80% in euros and 20% in units of account is considered to correspond to a very conservative profile. Today, we often turn to 60% in euros and 40% in units of account.
Insurance management vie multisupport
There are two types of management:
| Free management | Managed and streamlined management |
|---|---|
| The subscriber decides for himself the funds he wants to place in his units of account. He chooses between the supports offered by the insurer. | Life insurance is managed by the insurer, depending on the profile chosen by the subscriber:
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Life insurance is said to be “managed” when the profile changes according to the age of the subscriber, it is more secure the closer he is to retirement.
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Funds placed in units of account are not guaranteed. You are exposed to the financial markets, to their vagaries, and there is a risk of loss of capital.
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The taxation of life insurance
We often choose life insurance for its fiscal advantages. These are real, but care must be taken to compliance with conditions. Taxation also has a double advantage: on the one hand for the subscriber himself during withdrawals, whether these are annuity or capital payments, on the other hand for the transmission of assets, after his death.
Taxation in the event of contract surrender
As we have seen, one of the advantages of life insurance is that funds remain available. If you remove it, we are talking about redemption. Another mechanism exists, that of the advance, but it is not available from all insurers. Remember to check that your contract includes it.
Advance
It is in facta loan granted to you by the bank or the insurer by securing with the capital deposited on the life insurance contract. The financial conditions are generally unattractive and carry high interest, more than conventional loans. What is the advantage of the advance? Only not to reduce the capital placed on the life insurance contract which continues to benefit from annual interest.
The operation is generally unattractive, the interest on the loan being higher than that paid on the contract.
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The repurchase
Redemption is the most commonly applied solution for recover all or part of the capital. The total repurchase corresponds to the termination of life insurance.
The repurchase benefits fromtax breaks depending on the length of the contract. The taxation of life insurance is particularly complex. You have to do the calculations properly or seek the help of your banker or insurer, who generally have dedicated software.
Keep in mind that only capital gains are taxed.
| 0 to 4 years old | From 4 to 8 years old | Over 8 years | |
|---|---|---|---|
| Annual allowance |
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| Taxation | Lump sum discharge 35%
Or Integration into taxable income |
Lump sum discharge 15%
Or Integration into taxable income |
Standard discharge 7.5%
Or Integration into taxable income |
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A gradual exit is more interesting than a capital exit all at once.
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Life insurance and taxation of the estate
Beneficiaries :
- joint ;
- child;
- parents ;
- friends ;
- associations, etc.
The taxation of succession
| Exoneration | Taxation | |
|---|---|---|
| Premiums paid before age 70 | 152 500 euros | 20 to 25% beyond |
| Premiums paid after age 70 | 30 500 euros | Taxed according to the common law of inheritance beyond, only for the capital (capital gains are tax exempt) |
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