Life insurance is the preferred investment of the French, thanks to its flexibility and advantageous taxation. What are the characteristics of this contract, how to choose its beneficiary or beneficiaries and what limitation period applies to life insurance?
1. Definition and benefits of a life insurance contract
Life insurance is both a savings and investment tool: you make payments on a regular basis or not, which the insurance company places. The return on the investment will be more or less significant depending on the fund chosen. The French Insurance Federation indicates 144.6 billion euros were paid out on life insurance contracts in 2019.
Taking out a life insurance policy can meet various investment objectives:
- build up and/or grow capital;
- preparing for retirement;
- Pass On Their Heritage.
A principle different from that of death insurance
Life insurance should be distinguished from death insurance, the death benefit of which is primarily intended to financially protect loved ones in the event of death. Death insurance also covers you in the event of disability and irreversible loss of autonomy.
2. What are the benefits of life insurance as savings?
The funds invested in life insurance are not blocked: they can be redeemed at any time.
The capital or life insurance annuity paid in the event of the death of the insured does not form part of the estate. The persons designated in the beneficiary clause benefit from a reduction of €152,500 on inheritance tax, or even a total exemption if it is a spouse or PACS partner.
The beneficiary or beneficiaries of the contract can be freely chosen by the subscriber.
When the contract has been open for 8 years, the taxation applicable to redemptions is reduced. Life insurance products are subject to the progressive scale of income tax or a flat-rate levy of 7.5%. The rate of social security contributions is 17.2%.
3. How life insurance works
Several types of payments.
You can fund a life insurance contract with 3 types of payments:
The initial payment: this is the amount you pay when you open the life insurance. Some insurers set a minimum amount for the first payment. This initial payment can be unique but it is better to make others, in order to build up capital.
Free additional payments: you can continue to fund your life insurance contract as soon as you wish/can.
Scheduled additional payments: you can choose a frequency for your payments (monthly, quarterly, annually, etc.). This frequency can be modified at your convenience.
The sums paid can be placed on two distinct types of media:
Euro funds: this is the most popular option. Although their return is lower, it is the most secure investment since it is the insurer who bears all the financial risk. The loss of the initial capital is impossible and the interest earned is definitively acquired thanks to a ratchet effect. You can only make money.
Unit-linked funds: their return is better, but the risk is higher. The value of the units of account may vary upwards or downwards, depending on the evolution of the financial markets, you have a risk of loss of capital. The best is to mix the two to optimize its performance.
4. Beneficiary of life insurance: choice and impact of the death of the insured
The beneficiary of life insurance is the person to whom the capital or the annuity of the insurance will be paid in the event of the death of the insured before the end of the contract.
The life insurance subscriber can freely choose the beneficiary:
He may or may not be related to the insured. It can be a natural or legal person (an association, a foundation, etc.).
If this person accepts the benefit of the contract, then the insured cannot modify the clause without his agreement.
To obtain capital in the event of the death of the insured
Anyone can ask to be informed if a life insurance contract has been taken out for their benefit by a person for whom they must then provide proof of death. This request is made at the Caisse des dépôts et consignations.
Within 2 weeks of receiving the request, the Agira (Association for the Management of Information on Risk in Insurance) must inform the insurance company of the death of the insured.
From the receipt of the death notice, the insurer will then have 15 days to ask potential beneficiaries for the supporting documents necessary for the payment of the capital, within 1 month.
