Life insurance is a savings product whereby the insurer or the bank agrees to pay you at the end of the contract in addition to your original capital, the interest produced by your payment. It is one of the favorite investments of the French, who find in it a way to grow their assets while limiting risk.
It is also a placement profitable for financial institutions who derive substantial income from the various costs: management, arbitration, payment.
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Principle of life insurance
Life insurance is one of the favorite investments of the French, it is a savings product through which an insurer or a bank undertakes to pay you at the end of a contract, in addition to your original capital. , the interest produced by your payment.
The principle of operation is simple: this is a savings product through which the insurer or the bank agrees to pay you at the end of the contract the interest produced by your payment, in addition to your original capital.
This is a time-limited placement. At the end of it, one or more beneficiaries, appointed by the subscriber, receive the amount owed by the insurer. We will see that several cases can be defined.
It is the first savings contract in France.
The life insurance market is shared between 3 major historical players:
- traditional banks
- online banks
Who is life insurance for?
Life insurance is a financial investment subject to different rules for minors, adults and people over 70 years old.
It can be addressed to all households, regardless of their profiles, socio-professional categories or savings capacity. However, different regulations apply depending on the age of the beneficiary (ies).
Subscribing to a life insurance contract implies being of legal age. However, a minor can have a contract signed in his name. Parents or grandparents can in fact take out life insurance for their children or grandchildren.
The life insurance contract makes it possible to plan the payment of capital in the form of a periodic annuity. In this way, your children will not be able to waste all the capital at once, but according to a payment interval that you have established beforehand. This can be done in the form of annual or monthly annuities.
Read also: Life insurance to prepare your succession
The tax and regulatory characteristics of life insurance make it a financial product presented as generalist and accessible.
It is aimed at the general public looking for a security product to anticipate life events:
- protect your home,
- complete retirement,
- build up long-term savings,
- etc ..
To this end, several contracts can be taken out.
To note : your capital is not blocked but the tax advantages are much more limited in the event of termination of your contract before eight years.
For people over 70
Beyond 70 years, taking out a life insurance policy is less advantageous for you for tax purposes.
For more details : see article on the methods of taxation of life insurance.
Regarding the inheritance tax that will apply to your heirs: after a reduction of € 30,500, amounts paid after your 70th birthday are subject to inheritance tax conventional, at the rates in force and according to the family relationship.
On the other hand, the interest produced by the sums paid after your 70th birthday are exempt from inheritance tax.
What is life insurance used for?
Strictly speaking, it is not insurance. This is a savings product, so you will get back the money you invested plus interest at the end of the contract. It differs in this from a provident contract.
It can pursue various objectives:
There are two types of life insurance contracts:
Life insurance in euros
This type of contract in euros is a secure investment. The support offers a capital guarantee. That is, the insurer agrees to pay back the capital plus the profits at the end of the contract. There is no risk of losing money. Interest is paid on the contract on December 31 of each year. They are definitively acquired, at a guaranteed minimum rate and cannot be taken back.
Unit-linked life insurance
In units of account, on the contrary, it does not offer a guarantee of capital or a minimum rate of profit. The contract allows you to invest in various assets: stocks, bonds or real estate. It promises a higher return, in return for the risk on the capital.
Prepare before purchasing life insurance
Like any type of contract, life insurance is between a policyholder and a financial institution (a bank or an insurance company).
Signing such a contract is not taken lightly; you need to ask yourself the right questions before taking action.
The objectives of your life insurance contract
- Do you want to grow your capital?
- Prepare the transfer of your assets ?
- Are you looking for a high yielding savings product?
Once your objectives are well defined, you can then assess the risks you are taking and determine the management method that suits you best.
In light of these objectives, your financial advisor will probably offer you several types of life insurance contracts:
- Single-support contract in euros
- Multi-support contract
- Life-generation contract
Payments on your contract
Your life insurance contract must define the terms of payment of your capital.
Several options exist:
The single payment
This payment consists of depositing a capital in one go at the time of your subscription.
You are free to choose the amount and the terms of payment according to your needs.
Periodic payments give you less freedom over payment dates.
You have to follow a schedule (monthly, quarterly or annually) which will make your capital grow throughout the contract.
The players in life insurance
According to the type of contract (insurance in the event of death or life), several protagonists are involved in the establishment of life insurance.
- The financial institution or the insurer who undertakes to pay you the benefits – capital and capital gain at the end of the contract.
- The subscriber of the contract, who is the person who provides the capital to the financial institution during the term of the contract and according to defined terms. In the case of life insurance, the subscriber is also the beneficiary of the contract.
- The beneficiary (ies) other than you under death insurance who will receive benefits when the risk occurs, that is, upon the death of the policyholder.
To know : At the time of signing the contract, the presence of the beneficiary is not mandatory.
Withdraw your placement
Contrary to what you might think, the money you put into your life insurance policy is not blocked by the insurer.
You can get it back at any time. There are different modalities.
Today, most insurers offer several options for withdrawing money from life insurance.
- Total Redemption, (when the contract is closed)
- Partial Withdrawal, (ideal for example for additional tax-exempt income)
- Get an advance, (practice in the event of a one-off cash flow requirement, for example)
Read also: The advantages and disadvantages of life insurance?
How to subscribe?
Unlike other investment vehicles, it does not have no legal term. It is you, the subscriber, who define, when signing, the desired scope. At the end of it, you or another designated beneficiary receives a capital or an annuity. It is an insurance in case of life.
In the contract for death insurance, the capital or the annuity is paid to the beneficiary of your choice, if you die before the end of the contract. It can be taken out for a temporary period (temporary death) or for your entire life.
When subscribing, you are asked to choose one or more beneficiaries if you were to die before the end of the contract.
- Designate several beneficiaries. If the one you chose were to die, the money invested in the insurance would go into the estate. They therefore no longer benefit from the tax advantages that characterize them.
- Do not name your spouse by name but rather by the expression “my spouse”. In the event of divorce or separation, it is the spouse on the date of death who receives payment and not the one designated at the time of signing.
- It is not necessary to inform the beneficiary. On the other hand, it is recommended to file an act with the notary. Also, he will not be notified of his benefit until the death of the subscriber.
To have the subscription right, you must:
- Have the legal capacity to enter into a contract (be of legal age, not be under guardianship, etc.)
- Meet the conditions requested by the insurer, particularly regarding your age
- Complete, honestly and comprehensively, a medical questionnaire
- You agree to pay the premiums mentioned in the contract
Note that it is quite possible to take out a contract with several people (with members of your family for example), via a joint contract.
Little known to this day, it is authorized by some insurance organizations but not all.
On the other hand, a joint contract can only be taken out on the condition that the couple is married. If one of the two spouses were to die, the second would recover all the sums invested, benefiting from the interest.
When the second spouse dies in turn, the beneficiaries recover the sums invested and benefit from a classic taxation identical to that of a life insurance
When subscribing, it will also be necessary to indicate the method of coverage you want for your contract.
The question of a possible transfer of a life insurance contract is under negotiation. This makes it easier for the subscriber to switch from their current organization to a competing organization.
Depending on the time you can devote to monitoring your investment, your knowledge of the financial market and your taste for risk, you can choose between different management methods:
- Free management: you manage your contract in total autonomy. You only choose the funds in which you want to invest.
- Streamlined management: you delegate the choices related to your savings to a financial expert, but by first defining a risk profile – prudent, measured or balanced.
- Managed management: you entrust the arbitration between the media to a financial market professional. He is the one who defines your savings strategy.
- Management on the horizon: the composition of investments changes over time. More daring in her early days, she becomes cautious as she nears retirement.
How do I put money into the life insurance policy?
There are 3 methods:
- An initial payment, the first carried out when signing the contract
- Free additional payments, which you carry out when you want in order to maintain your standard of living
- Scheduled additional payments, which you define, in terms of amount and frequency, on the day of signing. They can be monthly, quarterly, semi-annually or annually and are made in the form of direct debits. You remain free to interrupt or modify the terms of these transfers at any time if your situation no longer allows it.
What does life insurance pay for?
The purpose of this subscription is to allocate capital and periodic capital gains in exchange for previously paid capital.
There are different types of contracts:
- The single-support contract (funds in euros) : it is an investment which aims for a minimum return of 2.5% to 3.5% on average excluding capital costs while remaining a safety investment. The capital is guaranteed by the insurer and the remuneration is below the average for other contracts.
- The multi-support contract: it allows a wide choice of supports (cash, shares, real estate, etc.), some even offer automatic management systems that allow the insured to protect or optimize their investment according to their needs.
Flexible, profitable and often acclaimed, this product also benefits from reduced taxation. Capital gains realized beyond 8 years are subject to a favorable tax regime. Thus, in the event of death, the capital is passed on to the beneficiaries with reliefs or even exemptions from inheritance tax, in the case of a surviving spouse or PACS partner.
“Please note: however, the management costs which, taken together, can weigh on your results.”
The end of the contract
It is above all a savings tool that is used to grow your investment during your lifetime.
- If you are alive at the end of the contract, you get back your capital as well as its “fruits”, that is, its interest. As long as you stay alive, you create capital on a declining tax basis. Whether you want to acquire property or prepare for retirement, life insurance pays you capital at the end of the contract.
- In the event of death before the end of the contract, it is sent to the people of your choice or “Beneficiaries” (your children, your partner, for example) that you have designated during subscription or later.
In the event of death
Life insurance is another contract that is more like a traditional insurance product. It allows you to insure and protect your loved ones upon your death who will receive your capital with an exceptional tax framework. Thus, the inheritance tax under subject to specific taxation.
In most cases, beneficiaries are exempt from tax or income tax on the amount received after death.
The death insurance contract is not only intended for seniors but also for the youngest.
Moreover, the more early the subscription, the lower the contributions and the greater the capital paid to beneficiaries.
Conversely, the later the subscription is made, the greater the risk of death and consequently the more the contributions increase.
It is for this reason that taking out life insurance as early as possible can be a real opportunity.
Although she is indignant about it more than one not so long ago, it remains today a real opportunity to ensure her back in order to be able to anticipate the financing of her funeral which can easily reach 4000 € for “classic” funerals.
In addition, this will prevent your descendants from having to release a large sum.