Life Insurance vs PER: Which One to Choose for Your Savings?

On the one hand, life insurance, a well-known product, with savings available at all times. On the other, the PER, a tax envelope which has attracted many French people since its creation in 2019 – and even more in recent months, in the midst of pension reform -, but on which the capital is blocked. If you hesitate between these two savings products, know that they are to be distinguished on several levels.

Sums available at any time for life insurance

“You want to save for the long term, prepare for your retirement or a real estate project to buy your second home, for example, while keeping your savings available, opt without hesitation for life insurance, to take out as soon as possible” , advises Gilles Belloir, managing director of Placement-direct.fr. Indeed, the savings placed on a life insurance policy are available at any time.

Conversely, the sums invested in a PER are not invested until your retirement, except in exceptional cases such as the death of the spouse or the acquisition of the main residence. “It is a tunnel device: the funds are blocked”, confirms Gilles Belloir. In fact, before subscribing to a PER (ideally around 40-45 years), take the time to build up a solid pocket of savings that can be mobilized in the event of the unexpected.

The PER for tax savings

With life insurance, no entry tax savings. But beyond the eighth year of the contract, “a reduction applies up to 4,600 euros for a single person and 9,200 euros for a couple subject to joint taxation, on all the gains included in the redemptions”, recalls Gilles Belloir. Social security contributions are due each year on a euro fund, and on redemption (or termination of the contract) on account units.

For its part, the PER allows you to reduce your tax. Take the example of a saver whose marginal tax rate is 30% (taxable income of 45,000 euros). He pays 4,000 euros on his PER. By deducting this sum from his taxable income, our saver will save 1,200 euros in tax (0.3 x 4,000). “The tax advantage is attractive for taxpayers in tax brackets from 30%”, confirms Gilles Belloir. The fact remains that at the exit, the capital is taxed at the income tax scale. But in any case, the tax savings made on the payments, a zero-rate loan in a way, allows you to grow capital and recover interest. Thus, even if your marginal tax rate does not drop on retirement and you are taxed when the PER is settled, you are still a winner.

Attention, if the PER is of interest for the most taxed taxpayers, who often see their marginal tax rate (TMI) decrease once in retirement, the device is much less interesting if you are not or little taxed.

A more dynamic investment strategy on the PER

Remember, the sums invested in the PER are blocked until retirement age. This makes it possible to have a more dynamic investment strategy over the long term by choosing units of account, in free or controlled management.

Conversely, life insurance can be released for a short-term project. In order to avoid the jolts of the financial markets and having to take a loss if you buy back your contract “at the wrong time”, give preference to euro funds, funds on which the capital is guaranteed, compared to units of account, by riskier and more volatile nature.

Higher fees on the PER

The tax advantage should not blind the saver! The latter must look carefully at the level of fees. And for good reason, insurers have tended to inflate costs on PERs given the tax benefit expected by savers. “The tradition has been perpetuated a little”, notes Gilles Belloir. In addition to the traditional opening fees (classic distributors being the most greedy), management fees on outstandings, arbitration fees and fees on payments are to be expected. To reduce them, the saver must favor online contracts. To also envisage, a membership in an association, paying there still. On the life insurance side, the costs are significantly lower and even more competitive for contracts taken out online.

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An estate benefit for life insurance

In life insurance, all payments made before the 70th birthday of the contract holder benefit from an abatement of 152,500 euros per beneficiary before taxation limited to 20% then to 31.25% once the threshold of 700,000 taxable euros has been passed. For payments after age 70, the allowance is reduced to 30,500 euros for all beneficiaries, with inheritance tax then applying.

On the PER side, if the holder dies before age 70, an identical allowance of 152,500 euros applies per beneficiary (before taxation at 20% then at 31.25%). If the death occurs after the age of 70, the capital paid on the PER as well as the interest enters your estate. Same fate for bank PERs (or securities accounts), for which no allowance is provided, regardless of the subscriber’s age at the time of his death. In these last two scenarios (death after age 70 and bank PER), the designated beneficiaries of the plan will benefit from a reduction, of 100,000 euros for example for each of the children. Beyond that, inheritance tax applies (5% up to 8,072 taxable euros, 10% up to 12,109 euros, 15% up to 15,932 euros or 20% up to 552,324 euros).

Finally, note that the PER can be particularly effective in terms of transmission to the benefit of the spouse or PACS partner, the latter being exempt from inheritance tax. In this specific case, the payments are in fact entirely tax-free and the beneficiaries have no inheritance tax to pay.

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