Paradox of life insurance: it is both the preferred savings product of the French (1.8 trillion euros invested in life insurance). And both the most misunderstood and the victim of misconceptions. To answer the question directly: no, there is no cap on life insurance. No cap on payment, no cap on outstandings. So we can save as much as we want and have as much capital gain as possible! That is to say, it is the savings product of the poorest and the richest: you can invest from € 100 and up to several million euros.
Moreover, you can have several life insurance policies, without limit, whether you are newborn or 100 years old. That said, be careful to choose: the best life insurances on the market are free of charge on payment (but some banks do not hesitate to charge payment fees approaching the regulatory ceiling of 5%!)
Among other false beliefs that we fight, remember that the money invested in life insurance is not blocked. So you can withdraw the money at any time. The famous 8-year mark simply makes it possible to optimize taxation. In practice, if you make a withdrawal (partial or total surrender) after the 8 years of the contract, you can benefit from an exemption from tax on the capital gain (under the annual reduction ceiling, explanations in the article ). Finally, life insurance is a savings product (in euro funds and / or investment funds), not to be confused with death insurance.
That said, even if there is no savings limit in life insurance, there is some threshold effects to know.
State guarantee ceiling: € 70,000
Money invested in life insurance is protected under deposit protection. More precisely, the FGAP (People's Insurance Guarantee Fund) guarantees € 70,000 per insurer per saver. Regardless of whether you have invested in euro funds or in units of account, the guarantee limit is € 70,000. Not by contract, but by insurer, so be careful if you have several life insurance contracts with the same insurer.
In practice, bankruptcies of insurance companies are very rare. The last dates back to 1997 with Europavie. That said, Groupama was threatened in 2012 and we cannot rule out insurer bankruptcy in the future. So it is preferable to apply the precautionary principle while remaining under the guarantee ceiling of € 70,000 per insurer.
Notice from Nicolas : for all savers, it is recommended to diversify on several life insurance policies. In order to diversify the management, the euro funds and the units of account accessible on the best life insurances. All the more for “big savers”, in order to multiply the guarantee of 70,000 € per insurer. For example, for 210,000 € to be placed, we could thus diversify on 3 insurers: 70,000 € on Linxea Avenir (contract insured by SURAVENIR), 70,000 € on Nalo (insured by GENERALI) and 70,000 € on Placement-direct Darjeeling ( provided by SWISSLIFE). And for a couple with € 420,000 to invest, 3 contracts each in their own name, because the guarantee applies to each depositor.
The tax ceiling in life insurance (€ 150,000) and the annual capital gain allowance (€ 4,600 or € 9,200)
Life insurance investments compound (the gains accumulate), without “tax friction”, as long as you don't take the money out of the contract. Apart from social security contributions (17.20%) deducted every year from earnings in euro funds, there is no tax or tax as long as you do not withdraw. This is called a capitalizing envelope.
In practice, you have to declare the gains only when you exit (partial or full surrender) and you are taxed on the capital gain depending on the age of the contract. And the taxation of the capital gain may be different depending on whether you have paid more or less than € 150,000 overall on your life insurance policies. Explanations.
The taxation of capital gains in life insurance
Gains (capital gains) are only taxed when a withdrawal is made (partial or total redemption) of the life insurance contract. Knowing that you withdraw when you want.
The taxation of capital gains in life insurance depends on 3 parameters:
- payment date : before or after September 27, 2017;
- contract age life insurance at the time of withdrawal: less than 4 years, between 4 and 8 years, more than 8 years;
- total of your payments : more or less than 150,000 €. This “tax cap” appeared during the life insurance reform in 2018.
The threshold of € 150,000 therefore only applies for payments from September 27, 2017 and on life insurance contracts over 8 years:
- if the payments are less than € 150,000 for all of our life insurance policies, then the tax is 24.7% on the earnings (after deduction of € 4,600 / € 9,200 on the capital gain);
- if the payments exceed € 150,000, then the tax is 30% (Single Lump Sum, aka flat tax) on the earnings (after deduction of € 4,600 / € 9,200 on the capital gain).
The annual allowance limit on capital gains: € 4,600 or € 9,200
It is only the portion of capital gain included in the redemption that is taxed. And before applying the tax, on contracts over 8 years old we benefit from the annual allowance of € 4,600 on the capital gain (or € 9,200 for a married or civil partnership). In other words, we can take out capital each year including € 4,600 (or € 9,200) of capital gain, without being taxed. This makes life insurance one of the best French tax loopholes, when you know how to optimize this annual reduction ceiling!
Note from Nicolas : Take the example of a contract of more than 8 years valued at € 50,000, including € 10,000 of capital gain. If we withdraw € 25,000, we consider € 5,000 of capital gain. By being single, you get an allowance of € 4,600 on the capital gain, or only € 400 taxable base. So 24.7% x € 400 = € 98.80 in tax if we have paid less than € 150,000 on our life insurance. Or 30% x 400 € = 120 € tax if we have paid more than 150,000 € on our life insurance. Thus, we can optimize fiscally by withdrawing every year a capital comprising less than € 4,600 (or € 9,200) of capital gain, so as not to pay tax on capital gains (on contracts of more than 8 years). Hence the interest in taking a date on life insurance, to take advantage of the tax advantage of contracts over 8 years old.
The ceiling for taking advantage of the inheritance advantage: € 152,500
Life insurance is above all a savings product, coupled with an excellent tool for transmitting wealth. We say that life insurance is not inherited. Thus, wealthy savers use it to transmit as much as possible to their heirs without inheritance tax. More specifically, to the beneficiaries named in each life insurance contract. Everything you need to know about life insurance, inheritance and beneficiary designation.
In practice, up to € 152,500 can be transmitted per subscriber-beneficiary pair without tax upon the death of the subscriber. And in each life insurance contract, you can designate the beneficiaries you want: child, nephew, neighbor, friend, association, etc.
Payments before or after 70 years on life insurance
Tax relief is global (across all contracts) and depends on the age of the subscriber saver at the time of the life insurance payments:
- under 70: € 152,500 reduction per beneficiary;
- over 70: € 30,500.
|Date of contract subscription||Age at payment||Payment before 13/10/1998||Payment after 13/10/1998|
|Before 11/20/1991||No matter||Exoneration||Abatement of € 152,500 per beneficiary. Beyond that, 20% levy. Then 31.25% on the fraction above 700,000 € (after deduction).|
|After 20/11/1991||Before 70||Exoneration||Abatement of € 152,500 per beneficiary. Beyond that, 20% levy. Then 31.25% on the fraction above 700,000 € (after deduction).|
|After 20/11/1991||After 70 years||Inheritance tax after deduction of € 30,500||Inheritance tax after deduction of € 30,500|
Note from Nicolas : to optimize this inheritance limit, we can favor payments before age 70 and open several life insurance policies. For example, for a couple with 2 children: Mr. will pay 152,500 € on life insurance (AV) 1 for child 1 and 152,500 € on AV 2 for child 2. And the lady will pay 152,500 € on AV 3 for child 1 and € 152,500 on AV 4 for child 2. Thus, € 610,000 will be passed on to the 2 children without inheritance rights.
You now know all about the life insurance limit and the different threshold effects. Finally, there is no payment limit in life insurance, but a few limits to know to optimize. In particular, to be protected by the deposit guarantee, we will save € 70,000 per insurer and to optimize fiscally we will withdraw a maximum of € 4,600 (or € 9,200) of capital gain per year on contracts of more than 8 years . And to optimize the succession if this issue interests us, we will pay as much as possible before age 70. To go further, we invite you to read 2 other articles: how life insurance works and our selection of the best life insurance policies.