With more than 1.6 trillion euros earning there, life insurance is, at least in amount, the favorite investment of the French, especially those who have a comfortable heritage. It attracts thanks to its tax incentive on income and inheritance in the event of death, but also by its very wide financial offer, in particular its guaranteed euro fund which always collects the major part of the payments. Under its rather banal appearances, life insurance is however a complex product which it is better to master.
- Insurance without insurance
Contrary to what the name might suggest, life insurance does nothing. It is a savings product: you will recover the money you have invested in it plus the financial interest accumulated over time, if they are there.
Not to be confused, therefore, with death insurance which, for its part, pays large sums to your loved ones in the event of premature death, even if you have paid only low contributions. But be careful if you don't die prematurely – which we wish you of course – your contributions are lost.
Some contracts provide for increasing the amount of savings in the event of death, but they are in the minority and the indemnity is still limited.
- Tax reduced after eight years
Savings placed in life insurance are always available, so you can withdraw your savings when you want. The insurer has two months to pay you the amount.
However, from a tax point of view, it is preferable to keep your contract at least eight years before making withdrawals from it, since it is from this period that the mildest taxation applies. You can then withdraw 4,600 euros in interest per year without paying taxes (9,200 euros for a married couple).
On the other hand, during the first four years of life insurance, the withholding tax applied on withdrawn earnings is dissuasive, at 35%. It then increases to 15% between the fourth and the eighth year following subscription. However, you can choose to add the gains to your taxable income during each withdrawal: if your marginal tax bracket is lower than the rate of the standard levy, you will be a winner.
In the event of dismissal, invalidity or early retirement, the withdrawn earnings are exempt from tax.
Life insurance contracts offer you the choice between different financial management compartments, which it is better not to confuse. To bet on absolute security, it is thus necessary to choose the “fund in euros”, which guarantees the invested capital and the interests accumulated over time. The only concern: its yield continues to decrease: it should bring in, on average, less than 2% in 2016.
If you are looking for performance, turn to “unit-linked” supports. Backed directly to the financial markets (stocks, bonds, real estate, etc.), they do not give you any guarantee on capital, but have, according to professionals, a higher potential for gains in the long term.
The best solution is often to mix these two compartments: part of the savings on the euro fund, so that you can always count on it if necessary, and part in diversification on the units of account, which you will leave invested. long-term. You can change this distribution at any time using “arbitrations”, which allow you to switch from one compartment to another.
The bill for life insurance can go up quickly: fees on payments, annual fees on the entire capital, arbitration fees, etc. To get the most out of your savings, choose contracts that do not consume too much: you will find contracts on the Internet. without entry fees and with annual management fees of 0.5%, while other companies do not hesitate to take 5% on your payments and 1% per year or more on your capital.
Payment fees are always negotiable, management fees – the heaviest in the long term – are rarely.
- Designate beneficiaries
When purchasing life insurance, you must determine the beneficiaries in the event of life (in general, yourself) and the beneficiaries in the event of death. These are the people who will receive the remaining capital on your contract after your disappearance. This designation is essential to take advantage of the tax benefits of life insurance.
You can name one or more persons in equal or unequal shares – within your family or not – and indicate several rows of beneficiaries (if the first named is no longer alive, the second will take his place).
Most contracts offer a standard clause that meets the main needs. It allocates the capital to the spouse, failing that to the children, failing that to the heirs. If this devolution does not suit you, you can change it and freely write your beneficiary clause.
Please note: if these beneficiaries are not your children and life insurance deprives them of part of the estate which should be theirs, they can take legal action against the contract.
Life insurance has tax and civil benefits for inheritance. The sums invested before the age of 70 are paid to the beneficiaries designated without taxes up to 152,500 euros per beneficiary. The more beneficiaries you name, the more you will optimize the allowance. After this amount, the excess is taxed at 20%, then at 31.25% from 700,000 euros.
Taxation for payments after age 70 is less favorable, but continues to provide an advantage: the premiums invested (and not the capital transferred) benefit from a reduction of 30,500 euros and savings savings are not taxable. This advantage being combined with that provided for payments before age 70, it would be a shame to miss out.
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