Redemption of life insurance: procedure and taxation – MAIF– Get a quote in minutes

07/2018 – Updated 07/18/2018 by Nicolas.F

In insurance parlance, buying out life insurance means withdrawing money from a contract. What types of redemptions are possible? How to buy back your life insurance and what are the tax consequences of this operation?

life insurance buyback

Buyout in life insurance: what is it?

The redemption (that is to say the withdrawal of a sum of money) on his life insurance can be partial or total. In the first case, it is withdraw part of your savings without this terminating the contract. In the second, it is about recover the full value of his life insurance, which has the effect of terminating the contract and its guarantees.

The amount of the surrender value is constantly changing. A total withdrawal corresponds to:

Total withdrawal = sum of payments made on life insurance + interest produced by the investment – insurance costs (entry and management costs) and social security contributions (CSG, CRDS).

The cash surrender value of your life insurance contract must be communicated to you each year by your insurer, provided that the acquired value exceeds 2,000 €.

Conditions for buying back life insurance

The only person who can buy back a life insurance policy is his subscriber :

  • The request is made either in writing or via the form provided by the insurer
  • The insurance company then has 2 months to pay you the cash value. After this deadline, late payment penalties are applicable for any unpaid amount.

A life insurance contract can be redeemed at any time but you have to be careful because some have a temporary unavailability clause, therefore implying a minimum investment period.

What taxation for life insurance?

The taxation of life insurance surrenders depends on when you purchased the policy. Since January 1, 2018, the 2018 Finance Law has made some changes to the taxation of life insurance. Products from withdrawals are subject to the progressive income tax (IR) scale or to a single flat-rate levy (PFU)

Here is the table summarizing the taxation of life insurance from January 1, 2018:

Interest on payments made BEFORE 09/27/2017 are subject to a tax of

Interest on payments made AFTER 09/27/2017 are subject to tax

Redemption on a life insurance contract less than 4 years old

(Lump Sum Withdrawal of 35% + 17.2% Social Withdrawals)

Flat tax of 30%
(12.8% Fixed Levy + 17.2% Social Security)

(progressive scale taxation)

Redemption on a 4 to 8 year life insurance contract

(Lump Sum Withdrawal of 35% + 17.2% Social Withdrawals)

Flat tax of 30%
(12.8% Fixed Levy + 17.2% Social Security)

(progressive scale taxation)

Redemption on a life insurance contract over 8 years old
After reduction of € 4,600 for a single person or € 9,200 for a couple **

(Flat-rate Withdrawal of 7.5% + 17.2% Social Security)

Up to 150,000 euros in payments for all contracts (as of 31/12 / N-1.)
24.7% (Flat-rate levy of 7.5% + 17.2% Social deductions)

Payments above 150,000 euros for all contracts (as of 31/12 / N-1.)
Flat tax of 30%
(12.8% Fixed Levy + 17.2% Social Security)

Good to know: if the buyback occurs following a dismissal, compulsory liquidation, early retirement or a situation of incapacity, the subscriber will be exempt from income tax.

Partial or total surrender of the life insurance contract?

The partial surrender of life insurance allows you to receive only part of the amount saved before the end of the contract and allows you to continue to make additional payments. This type of surrender does not modify the effects of the life insurance contract and allows tax precedence to be maintained.

It is possible to make one or more partial surrenders of your life insurance. We then speak of one-off redemptions. When an amount is withdrawn each month, or quarterly, for a certain period of time, these are referred to as scheduled partial surrenders.

It is also possible to opt for an advance, ideal to meet a one-off need for money. This is not a redemption but an amount loaned by the insurer. Therefore, unlike a partial surrender, the advance avoids possible taxation on the capital gains of the contract but must be reimbursed.