Life insurance: definition
Life insurance is a time-limited investment, at the end of which one or more beneficiaries designated by the insurer receive the capital invested, as well as the interest earned.
The principle of life insurance, the first savings contract in France, is simple: a subscriber entrusts an initial capital, to which will be added income paid by the insurer.
The life insurance market is divided into three main players: conventional banking establishments, online banking and insurance companies.
Life insurance is not insurance itself, but a savings product which, at the end of the contract, allows you to recover the money invested in addition to interest. Taking out life insurance allows you, among other things, to build up capital over the long term, supplement your retirement or prepare your estate.
There are two main types of life insurance contracts: life insurance in euros, and unit-linked life insurance.
Life insurance in euros is a secure investment offering a capital guarantee. In other words, the insurer undertakes at the end of the contract to repay the capital accompanied by the interest earned. Interest, paid on the contract on December 31 of each year, is definitively acquired at a guaranteed minimum rate. With life insurance in euros, there is no risk of losing money.
Conversely, unit-linked life insurance offers no guarantee of capital or even a minimum rate of profit. This contract makes it possible to invest via various assets such as bonds, stocks or real estate. In return for the risk to capital, unit-linked life insurance offers a higher return.
How to take out life insurance?
Life insurance, unlike other investment vehicles, is not regulated by any legal term. The duration of the contract is fixed by the subscriber upon signature. At the end of the contract, the insured person or one or more beneficiaries receive a capital or an annuity. Life insurance is therefore different from death insurance, a contract which allows the payment, in the event of the death of the insured before the term, of the capital or of an annuity to one or more beneficiaries.
Most banks and insurance companies offer life insurance policies. It's up to you to make your choice based on your affinities with these establishments, the terms of the contracts offered being generally the same.
When subscribing to a life insurance contract, the subscriber will still be asked to designate one or more beneficiaries if he ever dies before the established term. Radins.com also advises you to designate several beneficiaries. In fact, if the main beneficiary also dies, the sums invested in life insurance would then become part of the estate and would no longer benefit from the tax advantages that characterize life insurance.
It is not necessarily necessary to inform the beneficiary of life insurance, however it is advisable to file a deed with the notary. In this way, the insured will be automatically informed of his benefit upon the death of the life insurance subscriber. Note that from now on, insurers are obliged to make every effort to find the beneficiary or beneficiaries of life insurance.
Who can take out life insurance?
Anyone can take out life insurance provided they have the legal capacity, that is to say, be of legal age and not be under guardianship. The conditions required by the insurer must also be met, in particular with regard to age. You will also need to complete an honest medical questionnaire and agree to pay the premiums mentioned in the contract you sign.
Be aware that it is quite possible to take out a life insurance contract with several people, this is what is called a joint contract. Although this type of contract is not offered by all insurance organizations, it allows a married couple to take out a contract together. If one of the spouses dies, the other will benefit from the entire amount invested, with interest. If the second spouse also dies, then the beneficiaries of the common contract recover the sums invested under the same taxation as that of simple life insurance.
The different ways of managing life insurance
Life insurance allows you to choose between different management methods, depending on the risk desired by the subscriber, but also on the time available to him to monitor his investment and his knowledge of the financial market.
- Free management allows you to take care of a life insurance contract independently. It is the insured who then chooses the funds in which he wishes to invest.
- Streamlined management allows the subscriber to delegate his choices to a financial expert, while first defining the desired risk with the latter.
- The managed management allows the insured to entrust to a professional of the financial markets the arbitration between the various supports. In this specific case, it is entirely up to the professional to define a savings strategy.
Pay money on life insurance policy
To place money on life insurance, three payment methods are possible:
- An initial payment made when the life insurance contract is signed;
- Free additional payments, which are made when the subscriber wishes;
- Additional scheduled payments, the amount and frequency of which are defined by the subscriber on the day the contract is signed. These additional payments can be made monthly, quarterly, semi-annually or even annually, in the form of direct debits. The insured may interrupt them at any time or modify their terms when his financial situation no longer allows him.
The tax benefits of life insurance
The tax advantage of life insurance concerns inheritance tax. In fact, in the event of the death of the subscriber, the capital paid to the beneficiary (ies) is exempt and therefore does not integrate the estate.
When the surviving spouse is PACS or married to the deceased subscriber, then the latter also receives the capital and interest from the life insurance of which he is the beneficiary, all entirely exempt from tax and social security contributions, whatever the total amount he receives.
Regarding the transmission to other beneficiaries, the taxation depends on the age of the subscriber at the time of the payments.
Before 70 years: lThe capital transmitted to the beneficiary (ies) is not subject to inheritance tax if the amount does not exceed 152,500 euros per beneficiary. (Except for the spouse of the subscriber, who benefits from a total exemption). For premiums between 152,500 euros and 902,838 euros, a tax rate of 20% applies. For amounts greater than 902,838 euros, the tax increases to 25%.
After 70 years: premiums paid after age 70 are fully exempt from inheritance tax up to € 30,500. (Except for the spouse of the subscriber, who benefits from a total exemption). Beyond this sum, the additional premiums are integrated into the estate. As for the capital gains generated, they are entirely exempt from inheritance tax.