Operation of the life insurance contract: underwriter, beneficiaries …– Get a quote for free

Life insurance is a bit like a role play in which, in addition to the insurer, three players are involved: the underwriter, the insured and the beneficiary. This financial investment is favored by savers, who see the possibility of building savings, preparing for their retirement and organizing their succession under the best possible conditions.

A real all-rounder! Anyone can benefit from it, especially as the operation of a life insurance contract is relatively simple, at least in principle. A certain number of legal rules must nevertheless be respected, otherwise the contract risks being canceled.

The subscriber

It is he who designates the beneficiaries of the contract in the event of death. Main actor of a life insurance contract, the subscriber is the one who signs this contract, pays contributions (or premiums) to the insurance company and designates the beneficiaries in the event of death who, when the time comes, will receive the capital constituted. Given the sometimes considerable importance of the sums involved, the subscriber must have the legal capacity to perform such an act. Adults over 18 are supposed to have this capacity, but those whose lucidity is insufficient must be assisted or represented. This is particularly the case for people under guardianship or curatorship, and, of course, unemancipated minor children. Guardians or curators (appointed by the family council) must then be present when the contract is signed.

These precautions are not unnecessary, because if the legal forms are not respected, at the time of death, the reserve heirs may have an interest in asking for the cancellation of the contract, especially if strangers to the family are among the beneficiaries . And in this case, the contract can be reinstated in the estate assets.

Most of the time, the subscriber is an investor who wishes to build up reserves of money for his old age or bequeath capital to relatives under favorable tax conditions. However, a contract can also be concluded between an insurer and a legal person, for example an association or an employer. The saver is then not a subscriber, but only a member of the contract, therefore not entitled to modify the terms.

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The insured

In most cases, he is also the underwriter of the life insurance contract. Like any contract intended to cover a risk, life insurance involves clearly identifying the person, namely the insured, on whom the risk weighs. It is up to the subscriber to choose it. In almost all cases, life insurance is an investment, so the underwriter and the insured are one and the same person. Consequently, the question of choice does not even arise. But it may also be that a person wishes to guarantee another person against the death of a third, such as the example of the grandparent, underwriter of a contract, who designates his grandson as beneficiary if his father dies (this the latter then being the insured).

Certain precautions must then be taken in the choice of the insured since it is his death that will trigger the guarantee. Indeed, the temptation may exist for the beneficiary to make the insured disappear in order to touch the hoard more quickly … Hence the prohibition to designate as insured persons under guardianship or placed in a psychiatric establishment.

In the same spirit, and always if the insured is not the policyholder, he must be informed of the risk hanging over his head and give his consent in writing. Please note, the identity of the insured is not indifferent in terms of inheritance tax, since this depends on the age of the insured and the date of subscription of the contract.

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The beneficiary

He will receive the capital on the death of the insured, with very advantageous taxation. The person who collects the sums paid on the contract is considered to be the beneficiary. As long as the subscriber is alive, he is the beneficiary. Upon his death, it is the natural or legal persons (there may be one or more) whom he has designated. The choice of beneficiary (ies) is the sole responsibility of the subscriber and no one else, even if it is a creditor wishing to recover his stake.

This freedom of choice is essential, because it allows part of your assets to be passed on to third parties without any inheritance constraints. In other words, the sums paid are not subject to inheritance regulation or taxation, regardless of the identity of the beneficiaries (family, friends, associations, etc.). That said, not everyone can be designated as a beneficiary: they must not be struck with an “incapacity for enjoyment”, a measure targeting in particular the members of the medical professions (doctors, nurses, etc.) who have treated the insured person. during the illness from which he will die.

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The money invested and the accumulated interest can be recovered at any time. It is its ease of use that makes life insurance the most attractive investment for French people. Its principle is simple. The insurer manages the funds invested by the insured and undertakes to pay him, at the appropriate time, a lump sum or an annuity. In the event of death, the accumulated sums are automatically transferred to the designated beneficiaries. While the subscriber is alive, he can recover his funds at any time. In addition to these three basic advantages, a wide range of management methods, suitable for all types of savers, from the most prudent to the most daring, and a taxation on earnings, which, despite the measures in force since January 2018 remains very attractive.

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Unlike many other financial products, life insurance is also characterized by extreme flexibility. Thus, almost all contracts are “free payments”, that is to say that we feed them when we want and at the pace we want. Lazy people can even opt for scheduled periodic payments, even if it means interrupting them whenever they want. Finally, you can take out a life insurance policy – and even several – at any age, including for your child, who will regain control when they reach the age of majority.

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With rare exceptions, contracts are automatically renewed each year. The only downside to life insurance, it is sometimes said, is the risk of being stuck in it for a long time. Admittedly, this is an investment that is better not to touch for 8 years to optimize the tax benefit associated with it. It is also true that the entry fees of 2 to 4% charged by most insurers (only 100% Internet contracts are exempt) assume a fairly long holding period before being amortized. That said, the funds are never blocked, just as at the end of the 8 years there is no obligation on the subscriber to terminate his contract. In fact, life insurance almost never has a fixed term: they are tacitly renewable, unless the subscriber decides otherwise.

Good to know : in the rare cases where a contract is limited in time, the insured has every interest in providing for the possibility of extending it, otherwise he will have to recover his money, even if he does not need it. And if he wants to reinvest it, he will have to sign a new contract, and that will be a double penalty: pay additional fees and start from scratch for the tax benefit.

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The ten establishments that share the life insurance market

(1) The group manages the contracts distributed by La Banque Postale and the Savings Banks. (2) Manages in particular the contract of the association of savers Afer, a behemoth of the sector with its 50 billion euros in outstandings.

If many financial groups market life insurance contracts (BPCE, Covéa, Macif, MACSF, Swiss Life…), the French market is nevertheless concentrated on ten establishments, which account for 75% of the total outstanding amount (1.676 billion euros under management at the end of 2017). CNP and Crédit Agricole alone have more than 30% market share.

Death insurance: nothing to do with life insurance!

Marketed by the same groups, life insurance and death insurance have little in common, however. While the first is a financial investment with tax advantages, the second is a pension product used to protect his family from an accidental death: against the payment of a contribution, the insurer undertakes, if the death intervenes during the period covered (10 years, 20 years, etc.), to pay the beneficiaries the agreed amount. What if the insured is still alive at the end of the period? So the beneficiaries get nothing.

Notice to interested parties: contributions, which are small before the age of 45, end up being expensive when you get older. For 100,000 euros of guaranteed capital up to 70 years, count 15 euros per month at 40 years, but around 70 euros per month at 55 years.

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