Life insurance taxation is very advantageous. This is why its success is well established. Life insurance is often seen as a good plan for growing your money over the long term. And it is the case: over longer periods of time, it makes it possible to obtain much better rates than bank books.
Yields may be down, but that doesn't stop life insurance from remaining very profitable and offering very profitable rates that often exceed 3% for insurance and euros, and can even reach 7% for risky investments. This is why this type of investment is attracting more and more French people.
The purpose of this article is to analyze and understand life insurance taxation so that you can make your choice with complete peace of mind and knowledge of the facts. You can then easily find the best life insurance through our comparator:
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Life insurance taxation, why is it so interesting?
Life insurance taxation indicates that the products, which are the interest generated by the investment, are exempt from tax as long as they remain in the life insurance account. Social charges are still applied. How is the tax going?
Products are taxed tax when buying life insurance, whether partial or total. The redemption corresponds to the withdrawal of part or all of the money accumulated in the account by the insured. The amount of tax that applies depends on two criteria: the date of withdrawal and the choice of taxation of the insured (IR or PFL). The table below illustrates the evolution of the taxation by duration as well as the different choices that the holder of the insurance has.
| Contract length|
|0-4 years||From 4 to 8 years old|| From the 8th year:|
Tax allowance (maximum € 4,600 for a single person; € 9,200 for a couple)
| Option 1:|
Lump Sum Withdrawal (PFL)
|Rate at 35%||Rate at 15%|| Rate at 7.5%|
(if still taxable)
| Option 2:|
Integration of products into taxable income
|Possible and advantageous if income tax is lower than PFL||Possible and advantageous if income tax is lower than PFL||Possible and advantageous if income tax is lower than PFL|
(if still taxable)
From the eighth year, if the interest generated is less than € 4,600, it is therefore exempt from tax. Life insurance taxation is therefore very advantageous in the long term. More clearly, what happens when you make a withdrawal?
For each partial withdrawal, life insurance taxation considers that one obtains a share of capital, which is therefore non-taxable, and a share of products which are taxable. Here is how to calculate the share of taxable interest:
(partial surrender amount – total premiums paid on withdrawal date) X (partial surrender amount / total surrender value on partial surrender date).
In the case of a total withdrawal, the taxable part is calculated as follows:
amount of savings earned – total of payments made.
Note that the insurer must declare any redemption made to the tax authorities.
A total exemption (except abatement) is possible in certain very precise cases: dismissal, early retirement, invalidity, or cessation of self-employed activity. All these cases are also valid for the companion in case of joint membership. It is therefore necessary to choose integration into income as a tax method and produce the necessary supporting documents.
Social security contributions, which are part of life insurance taxation, apply in all cases.
In a single support contract in euros, the life insurance tax system provides, each year, for the automatic application of the rate in force (15.5% to date). This price is charged even if no withdrawal is made.
For a multi-support contract, the current rate is applied for the fund in euros. The unit-linked fund is subject to direct debits only in the event of withdrawal or settlement of the contract, at the rate in force at the time of withdrawal. In the event of an unlucky investment, part of the contributions collected may be refunded if the calculation has been made beforehand without being able to take account of this loss of money.
Small glossary of life insurance taxation
There are three major terms to remember in order to understand life insurance taxation: tax base, amount of social security contributions, and income tax / flat-rate taxation.
The taxable base:
The tax base on income tax and social security contributions depends on the partial or total nature of the buy-back (i.e. if the insured person recovers all or only part of the funds). This is the amount on which the taxes will apply.
Social security contributions:
Life insurance is all subject to it, whatever its duration and / or nature. Rates vary by date of acquisition, but the current rate is 15.5%.
Income tax and flat tax:
When interest (income) is declared taxable by the life insurance tax authority, it is subject to the progressive income tax schedule. But there is an alternative to pay less tax: Flat-rate taxation can be chosen as an alternative. Its rate depends on the duration of the contract.
Reminder of the usefulness of life insurance
Now that we've seen what life insurance taxation is, here's a quick reminder of whatis life insurance. It is a contract (always subject to the rules of life insurance taxation) which allows capital to be saved. The duration of the contract is freely chosen by the insured. If the latter is alive at the end of the contract, he receives all of his invested capital (with any interest). In the event of death before the end of the contract, the person he will have designated as the beneficiary will receive the money. Once the contract is signed, the insured can freely make payments which will then be subject to life insurance taxation.
There is the monosupport contract, which comes in two forms: first, the contract with a fund in euros, that is to say that the fund is built by regular payments (premiums). The capital is guaranteed and earns interest. Then the unit-linked contract. Here, capital translates into different financial supports such as shares. In this case, the fund is not guaranteed and fluctuates; but it can pay off.
There are also multi-support contracts, where part of the capital is built up by a fund in euros and the other by units of account.
Remember that life insurance taxation is calculated differently if you have a fund in euros or in account units.
Life insurance taxation may seem complex at first glance. However, all you have to do is make the right calculations and understand its ins and outs. We hope that with this article you will have become an expert in life insurance taxation!