1. Summary of the functioning and legal framework of life insurance
Life insurance works like an envelope in which it is possible to put almost all the supports, stocks, bonds, raw materials … It is a support exempt from inheritance tax within a certain limit. Indeed, in the event of death, a reduction of € 152,500 is applied.
The taxation applied to this contract is advantageous and depends on the age of the contract. Here is the detail:
- In the event of redemption between 0 and 4 years, the capital gains are subject to the standard withholding tax of 35%
- Between 4 and 8 years, this levy is reduced to 15%
- Beyond 8 years old, a 7.5% levy will be applied after a reduction of € 4,600 for a single person and € 9,200 for a couple.
Note that since July 1, 2011, interest from the contract's euro fund is subject to social security contributions. These social security contributions amount to 15.5% since January 1, 2013.
In France, close to 30 million life insurance contracts are open and the vast majority of them are in banks. Benchmarks for the French in terms of financial investments, banks are far from offering the best contracts on the market. Thus, in 2012, the average yield of life insurance contracts in France amounted to 2.84% and those offered by the banks took over the podium … of the least efficient!
In search of more attractive returns and concerned about the return on their savings, the French are turning today and increasingly towards better contracts, often managed by specialized management companies. However, since the life insurance contract is not transferable, they come up against an obstacle when closing it: the age of the contract.
In fact, once the first eight years of the contract's life have passed, you then switch to the most advantageous period in terms of taxation and closing your contract to open a new one means that you start from scratch with regard to tax anticipation. This is, moreover, an argument widely used today by a majority of bankers to dissuade their customers from closing their contracts by going to take out a more efficient and better contract elsewhere.. This is how many give up on closing it and continue to be satisfied with a more than mediocre yield, often below 3%.
2. But then, what to do?
► Zoom on a new smart contract, proposed by GENERALI PATRIMOINE
GENERALI, number 1 in Europe in life insurance with 85 billion euros in assets under management in France, has recently launched an innovative contract to address this problem, OCTUOR.
In its operation and its offer, Octuor is a life insurance contract like any other. You can indeed invest your money both in a euro fund and in various and varied units of account. The specificity of this contract is based on its structure, explanations:
As we have seen previously, in the event of redemption on a conventional contract, a tax is applied which depends on the duration of holding of the said contract (between 35% and 7.5% in addition to the PS). On Octuor, and this is the particularity of the contract, there is no income tax in addition to social security contributions between 0 and 8 years old.
Let's go a little more in detail to understand why we don't pay taxes when buying back:
Octuor is what is called a deferred profit sharing contract.
For simplicity :
- On a conventional contract, the products generated by the work of your money are added to the capital and when you make a buyout, it is considered that this one is composed for a part of capital and for another of interests. It is therefore the latter which is taxed according to the duration of the contract (see above).
- On Octuor, the products generated do not add to the capital, they go into a “separate” pocket called the participation pocket with deferred profits, which means that redemptions are only made on the amount invests in capital. There is therefore therefore no additional taxation.
Let’s take an example to illustrate how this works:
On January 1, 2013, you invest 100 in a contract that earns you 4 interest. This capital gain is therefore added to the amount invested and you therefore find yourself on January 1, 2014 with a contract whose value is 104. On your conventional contract, your redemption is made on this total amount and the share of capital gain is therefore taxed according to the age of your contract. On Octuor, these 4 interests do not join your capital, they are kept separately on the participation pocket with deferred profits. The redemption being made only on the 100 of capital, there is therefore no taxation on capital gains.
Each year, the interest generated by working your capital is therefore integrated into the deferred profit participation pocket, which will work in the same way and also generate added value.
Beyond 8 years, the 2 pockets are “grouped” and Octuor then benefits from all the operating conditions of a “classic” life insurance contract.
Thanks to an intelligent mechanism, Octuor offers a real solution for all those who have a disappointing performance contract but who have not closed it because of their age. With accommodative taxation, the loss of seniority is no longer an obstacle for those who are looking for performance. However, choosing a life insurance policy suited to your profile requires taking into account many parameters as well as thinking about the long term. For that, it is essential to be accompanied by a professional in Wealth Management Consulting who will guide you in choosing the product that best meets your expectations and your objectives.