Of course, life insurance is a financial investment. But it is also a double insurance contract since it covers the insured both in the event of life and in the event of death.
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The principle of life insurance
Life insurance is very special because it is an insurance contract, a savings contract and a financial investment.
Life insurance and savings
It is too often forgotten that life insurance is first and foremost an insurance contract. By subscribing, the insured entrusts his savings to an insurer for a fixed period. In return, the insurer builds up capital for him and eventually commits to paying him the amount saved, together with the interest earned. And if the subscriber dies before the end of the contract, the whole is transmitted to one or more beneficiaries of his choice.
But of course life insurance is also a savings contract, on which the money is not blocked: it can be taken back by the insured, in part or in full, to meet an unforeseen expense. This is called the “partial or full surrender of the contract”. On the other hand, the choice of the life insurance contract is final: you cannot transfer your savings from one life insurance contract to another. But it is possible to take out several types of contract, with different beneficiaries for each in the event of death. After signing, the subscriber of a life insurance contract has 30 days to withdraw.
Life insurance and financial investment
During the savings phase of the life insurance contract, the money is invested by the insurer to earn interest for the policyholder. Depending on his saver profile, the investment vehicles he chooses, the returns on savings are more or less important each year. The investment can be:
- Cautious: low risk, therefore a low but guaranteed return;
- Active: slightly riskier supports, for a better return;
- Dynamic: the risk is high but, if the investment vehicles are on the rise, the return on savings will be high;
- Mixed: This is called a “multi-support” placement, which blends cautious, active and dynamic supports.
Even if the economic and financial crisis has just severely damaged the returns and prestige of stock market investments, over the long term, analyzes show that “risk” capitalization investments are still profitable. Before recovering your investments, you just have to know how to wait for values to rise again. Which always ends up happening.
Life insurance investment vehicles
Depending on the type of contract chosen by the subscriber, savings placed on a life insurance contract can be invested, either in euros, or in units of account, or both in euros and in units of account.
- If it is an investment in euros, the capital can never decrease, because the insurer guarantees a minimum annual revaluation rate;
- If it is a unit-linked investment, the subscriber decides to run a little more risk with his savings, in order to obtain a better return. In this case, the money is invested in transferable securities such as sicavs or mutual funds (FCP). The return depends on stock market fluctuations. If the subscriber is familiar with the mechanism of the financial markets, it is he who decides which investment vehicles he chooses, following a rather cautious or rather dynamic orientation. Otherwise, he may prefer to delegate investment decisions and investment management to the insurer, his bank or an independent financial advisor;
- If it is a multi-support contract, the investments are mixed, both in euros and in units of account. The subscriber chooses the portion of the savings invested in each medium, depending on the risks he is willing to take.
The subscription of the life insurance contract
Before choosing the right contract, you must first think about the interlocutor you are going to have in front of you. Whatever it is, it is subject to some legal obligations.
The choice of insurer
A life insurance contract is expected to last for several years, or even several decades. He will also be raising large sums of money. Therefore, the choice of insurer is essential. For this, there is only one selection criterion: the reputation and reliability of the parent institution.
Savers have access to certain information concerning the good financial health of a bank, an insurance company or a mutual, in particular by reading their annual report. However, in practice, this reading is not easy, especially for newbies. In that case, don't hesitate to ask lots of questions and have everything you don't understand exactly explained to you.
Choose your bank
This is the most common choice: financial advisers at banks offer their clients to take out a life insurance contract, just like any other savings product. The advantage of choosing your bank is proximity and a certain amount of mutual trust. Both for the client, who benefits from advice tailored to his financial situation and wealth objectives, and for the bank, which knows its clients and their savings and investment possibilities.
In all cases, when subscribing, the customer must be informed that the contract is taken out with an insurance company, and whether the latter is a subsidiary of the bank or that it belongs to its group. . For group life insurance contracts for which the underwriter is the bank, and the insurer is its subsidiary, banks must inform customers of the changes that may occur during the term of the contract: the nature of the change, its reasons , its consequences, the terms of adoption of the amendment.
Choose your insurance company or mutual
Insurance companies and mutuals all offer some life insurance policies that bear their logo. This is not necessarily a guarantee of efficiency a priori. Before subscribing, it is better to read the contract and have it explained clearly.
The other question is whether the insurance agent, to whom we contact to take out the life insurance contract, has a good grasp of this type of product, which is still more a matter of asset advice than of the damage insurance to which he is accustomed. To verify this, there is only one solution: read and study each clause of the life insurance contract with him. If he stumbles on specific issues, demand a more competent contact.
Choose a broker
The insurance broker or general agent is not related to any particular life insurance company. Depending on investor profiles and their savings capacity, it may offer several types of contracts from various life insurance companies. Its offer is therefore more varied, and potentially better suited to a given financial situation, and one with a specific asset objective.
In life insurance, the broker now takes the name of “wealth management advisor”. Note that there is no specific training for this profession. This is why, before taking out “eyes closed” for a life insurance policy or any other savings product on his advice, ask him about his background and skills.
The principle has developed at high speed over the past ten years. Online brokers such as Coover are websites operated by private financial companies or real or online banks. They offer to invest and manage your savings yourself, at lower costs.
This presupposes, first of all, a good general knowledge of financial mechanisms. In addition, online brokers are more specialized in stock market investment transactions. However, some sites not only offer a checking account and some banking services, but now also life insurance contracts. In principle, the larger the services, the more interesting the arbitration possibilities will be.
Afer, Gaipare or Agipi among others, their objective is to take out group life insurance contracts. These savings associations are now more than ten and often emanate from the insurance companies themselves. The principle has developed since the 1980s, when Afer won the 5.5% tax imposed at the time on life insurance contracts.
It works as follows: savers join the association and it is the association who takes out the life insurance contract, negotiating the conditions with the insurer. If the association disappears, the contract continues as of right with the insurance company. Note that savings associations do not collect memberships themselves. To take out a life insurance policy with her, you have to go through a financial intermediary – bank, broker, insurance agent. As this type of life insurance contract is a group contract, the association can modify it without asking the members for their opinion. To keep abreast of developments in the contract, it is therefore necessary to go without fail to the association's general meetings.
The obligations of the life insurer
Before offering a life insurance contract, any financial advisor is required to establish the financial profile of his client. For this, he must precisely define:
- Its investment objectives;
- The risks he wants to take;
- The extent of his knowledge of financial markets.
The life insurance contract must then perfectly match this profile. In addition, he is also subject to several professional obligations.
The information obligation
Savers must be able to require specific advice tailored to their profile, as well as all the documentation necessary for choosing their contract. He must also have time to think before he makes up his mind, to ask all kinds of questions and get specific answers. Note that all life insurance contracts must now include a box showing their essential characteristics, that is to say, in order:
- The nature of the contract: individual contract or group contract with individual membership;
- If the capital is guaranteed (only on funds in euros);
- Profit sharing;
- If the withdrawal is possible at any time;
- The deadlines for making a withdrawal; The fees charged;
- The duration of the contract (with a minimum of eight years);
- The designation of the beneficiary: when, how and how much, possibly changing.
The guarantee obligation
It will be understood that life insurers are the custodians of a considerable sum of savings: 1,700 billion euros in 2018. However, they cannot do just anything with the money of policyholders. They are also subject to much stricter accounting rules than banks. And they must respect a number of financial prudence rules:
- Commitments made to policyholders must be estimated with caution;
- Funds in euros must be provisioned in such a way that policyholders can all withdraw their money at the same time;
- If savings are placed in financial markets, investments must be diversified so as to reduce risk;
- On unit-linked or multi-vehicle funds, the life insurer must build up a solvency margin, that is to say a level of own funds allowing it to meet its commitments to policyholders.
In all cases, all insured persons benefit from a waiver period of 30 calendar days from the day on which they are informed that the contract is concluded. To withdraw, he must simply send the insurer a letter of waiver by registered mail with acknowledgment of receipt, which must return all the sums he paid to him.
How a life insurance contract works
Anyone from the age of 18 has the right to take out a life insurance contract. Then there is no age limit to subscribe. Parents of a minor child can open a contract in his name. After that, they have to handle it securely. Note that a child cannot choose the beneficiary of his contract before reaching the age of majority. There is no limit to the number of life insurance contracts per person. Moreover, when a saver wishes to invest very large sums, it is better for him to take out several life insurance contracts, with a wide choice of investment vehicles and different beneficiaries.
The premiums of the life insurance contract
In insurance in general and life insurance in particular, the payments are called “premiums”. They are compulsory and not deductible from taxable income. However, their level and regularity depend entirely on the choice of the saver. Thus, they can be:
- Free and unscheduled;
- Scheduled at fixed times;
- Single payment.
This choice is made at the time of subscription.
There may be a minimum payout, but there is no deposit limit. You can always get your savings and their interest back before the contract ends. But in this case you will usually have to pay contractual penalties, as well as relatively high taxes and duties, especially before four years of service. Another question to ask before subscribing!
Depending on whether you opt for a contract in euros or in units of account, the remuneration of savings is not the same.
- In euros, the remuneration is fixed: generally between 3 and 5%. It consists of a guaranteed minimum rate, together with a share of the profits made by the life insurer, with the savings paid into the contract, after deduction of its management fees.
- In units of account, the remuneration is not guaranteed: it depends on the stock market or real estate securities in which the savings are invested. On this type of contract, in addition to the management fee for the contract itself, there may also be costs associated with managing the securities.
Profits from contracts in euros are subject to social security contributions every year (17.2% in 2018) as well as to the settlement of the contract (up to the level of products not already subject to these deductions when they are registration). On unit-linked or multi-vehicle contracts, the reverse is true: no withdrawals during the savings phase but on exit.
The costs of the life insurance contract
On life insurance contracts, there are three types of fees:
- Payment fees: they are withdrawn at once, on each amount invested by the saver. Example: the amount of fees on installments is set at 4%; if the saver pays € 100, € 4 will be taken by the life insurer, who will pay € 96 into the contract;
- Savings fees: these are fees levied annually on the total savings placed on the contract. They break down into two types of costs:
- the costs of managing the contract itself;
- the costs of managing the financial supports in which savings are invested. This set should be watched closely, as it can quickly reach large proportions (up to 5% or 6% of savings);
- Fees on arbitrage: some multi-device life insurance policies add a levy each time the saver decides to transfer part of his money from one financial medium to another, to improve his return. This levy can also be broken down into two types of costs:
- a commission rate applied to the entire amount transferred;
- fixed costs.
Always make sure you specify the details of the fees charged by the financial intermediary, as well as how they are collected.
The possibilities of surrender of the life insurance contract
It is possible to withdraw money before the contract expires. This is called the “buyout”. It can be partial or total:
- A partial redemption corresponds to the withdrawal of part of the savings. The rest continue to be paid;
- A full surrender corresponds to the final closure of the contract.
In both cases, the contract may provide for penalties. In addition, depending on the anniversary date of the contract, the tax deductions on the redemption can be more or less heavy: before four years, they are very high (35%), then they gradually decrease with the age of the savings. . For unit-linked or multi-fund contracts, before considering a buyout, it is also important to monitor the financial markets, and if possible wait for them to rise, to take full advantage of the profits.
The unwinding of a life insurance contract
Any life insurance contract must last at least eight years. But it can be expected for much longer, if not almost a lifetime! Once the expiry date has been reached, if the insured is alive, the insurer guarantees the payment of a capital or a life annuity. Life insurance is then used to provide additional income, for example from retirement.
The decision to take out your savings in annuity or in capital depends on the objectives chosen at the outset: to improve your daily life and / or to pass money on to those close to you. The subscriber does not have the obligation to choose upon signing the contract, whether he wants to unwind it in annuity or in capital. This option can be decided after the first eight years of the contract.
The Pacte law has modified the life insurance regime; it is now possible to transfer your contract to another management body before the 8-year term has expired, but only if the insurer carrying the risk is the same.
The annuity withdrawal from life insurance
When the life insurance contract aims, for example, to improve the retirement of its subscriber, the contract is terminated as soon as he reaches the expected age. From there, he begins to receive an annuity for life, taxable on the income. This is called a “life” insurance contract.
In the event of death, this annuity can even be paid to the spouse, provided that the contract provides for it. Otherwise, the insurer keeps the remaining savings. As we can see, in this case, life insurance is indeed an insurance contract.
Capital withdrawal from life insurance
This involves withdrawing all the savings placed on the contract at once. If the purpose of this is to transmit money to one or more beneficiaries at maturity, it is transmitted in the form of capital, which is usually exempt from inheritance tax. And, of course, a mix of the two options is also possible: an annuity during the life of the subscriber, then the transmission of the remaining savings on his death.
Taxation on leaving a life insurance contract
That’s the big question. Because, faced with such a mass of savings, the public authorities are always tempted to come and deduct tax and social contributions, then gradually increase the withdrawal rates. At the risk of diverting savers. Despite taxation which has risen sharply in recent years, life insurance remains attractive.
The principle is as follows: the more patient the saver, the less tax he pays when he takes back his savings. And as soon as he makes a partial or total surrender or terminates his contract in the form of capital, the savings are taxable on the income. In other words, he must declare it at the same time as his other income, and his tax will be even heavier that year.
Another possibility is the withholding tax, which is a lump sum taken from savings when leaving the contract. Its rate depends on the length of the contract:
- Before the end of the fourth year of service of the contract, it is set at 35%;
- Between four and eight years of service, the rate is reduced to 16%;
- From eight years of seniority of the contract, any withdrawal or unwinding of capital is taxable on income, but beyond a reduction of € 4,600 for a single person, or € 9,200 for a couple subject to taxation. common.
If the subscriber prefers the withholding tax, its rate is set at 7.5%.
Some redemptions are tax exempt in the event of an exceptional event:
- Dismissal or end of fixed-term contract;
- Early retirement ;
- Second or third category invalidity preventing any professional activity;
- Judicial liquidation.
The withdrawal must take place before the end of the year following the year of the event. Furthermore, when the contract is terminated by the payment of a life annuity, it is also fully exempt from taxes. On the other hand, the annuity itself is subject to income tax, after an allowance linked to the beneficiary's age:
- 70% for those over 69;
- 60% from 60 to 69 years old;
- 50% from 50 to 59 years old;
- 30% under 50 years.
In all cases, and including in the event of exemption from income tax, social contributions are also levied on leaving the unit-linked or multi-support contracts.
- 9.9% CSG;
- 0.5% CRDS;
- 4.5% social levy;
- 0.3% additional levy;
- 2% solidarity levy;
- Total: 17.2% social security contributions.
Life insurance and transmission of assets
Any life insurance contract provides for the designation of one or more persons to whom the savings will be transferred in the event of the subscriber's death. This is called the beneficiary clause. Better still, the paid-up capital is not part of his estate. This is the very big advantage of life insurance. If no beneficiary is named, the underwriter is deemed to have purchased the life insurance policy for himself. The savings are then reintegrated into the estate of the deceased and distributed among their heirs according to the rules of the Civil Code. And it is also subject to inheritance tax.
In addition, from now on, life insurers are required to inform themselves of the survival and death of their policyholders. And when death does occur, they find themselves under the obligation to find the beneficiaries of the life insurance contract and notify them that they are the heirs.
The choice of the beneficiary of the contract
It is completely free. It can be :
- The spouse, cohabiting partner, PACS partner;
- Any other more or less close family member;
- One or more dear friends.
There may be one or more beneficiaries. And if there are more than one, their shares may be unequal. The saver can also specify how they will share the capital, or whether priority should be given to some over others. The capital of the life insurance contract may be disproportionate to what must be legally left to the direct heirs. In this case, the tax authorities can refuse the beneficiary clause and reintegrate all or part of the savings into the estate of the deceased.
Acceptance of beneficiary
As long as the beneficiary has not officially accepted that the savings fall to him in the event of the subscriber's death, the latter retains his freedom of management: he can redeem all or part of his contract, modify or stop his payments, etc. He can also decide to change the beneficiary or add others. On the other hand, as soon as the beneficiary officially informs the subscriber that he agrees to be, a signed rider from both is added to the contract. After that, for any subsequent management decision, the subscriber must request the approval of his beneficiary.
Amounts paid before the subscriber's 70th birthday are exempt from inheritance tax, if they remain under a ceiling of € 152,500 per beneficiary. Beyond this limit, the rights amount to 20% of the capital, including premiums and interest.
After the subscriber turns 70, the premiums are subject to inheritance tax as soon as they exceed € 30,500, regardless of the number of beneficiaries. The finance law for 2010, passed in Parliament in the fall of 2009, removed the exemption from social security contributions for multi-vehicle life insurance contracts in the event of settlement by inheritance. This measure applies to all interest capitalized on current multi-vehicle life insurance contracts for unwinds that occur as of January 1, 2010. And this, regardless of the date of subscription of the contract.
The issue of unclaimed contracts
The French Insurance Federation estimates the amount of unclaimed life insurance contracts at around 1 billion euros. Two laws of December 15, 2005 and December 17, 2007 strengthened the resources made available to policyholders and insurers to facilitate research:
- Beneficiaries who do not claim their rightful life insurance contract;
- Life insurance contracts claimed by beneficiaries who cannot prove the real existence of the contract.
First, each year, insurers inform their clients of the characteristics of their contracts, by sending them a statement of information that they must keep in a safe place. In addition, following a death, anyone who considers themselves to be the beneficiary of a life insurance contract can launch a search with the Association for the management of information on risk in insurance (Agira).
Finally, since March 2009, following the CNIL agreement, insurers have the right to consult the INSEE file on natural persons, to facilitate searches for deceased subscribers. In 2016, 83,244 requests were sent to Agira, and 8,529 contracts were detected. It should be noted that, from now on, the amount of unclaimed life insurance contracts following research carried out by insurers is gradually being allocated to the Pension Reserve Fund.
Life insurance: the essentials to remember
Here is a memo sheet on life insurance which summarizes its mechanism and to whom it is intended.
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