Find out everything you need to know about the favourite investment of the French: What is life insurance? How to make it a support for responsible finance? What do the names of funds in euros and units of account cover? Why you should absolutely open a life insurance policy What criteria should be used to choose the best? What about Luxembourg life insurance contracts? What are the risks for this investment in times of crisis? How to avoid them?
And to understand everything, find our info graphic: opening a life insurance and exclusive final expense leads user guide, but also, to guide you in your choice, our comparative table of the different contracts and our video advice to optimise your investment. Finally, find at the end of this file, the eBook Optimise your life insurance.
LIFE INSURANCE: WHAT IS IT?
Life insurance is a contract by which the insurer undertakes, against payment of premiums (payments of money) by the subscriber, to pay a capital to a specific person (the beneficiary) in the event of the death of the ‘assured.
But in France, life insurance is also and above all used as an investment vehicle. In fact, your savings remain available at all times. To recover it, you will have to make what is called in the jargon of the insurers a “buy-back”. Please note, however, that the latter will be subject to a specific taxation depending on the opening dates and payments on your life insurance contract as well as the overall amount you have in life insurance.
The transmission to beneficiaries remains of course possible in the event of the death of the insured, with tax advantages to the key.
It is moreover the tax advantages of this envelope, and the diversity which characterises it, which make it the preferred investment of the French. Individuals, in fact, appreciate being able to combine guaranteed capital investment with riskier positions, all within an attractive tax framework.
LIFE INSURANCE: AN INVESTMENT SUPPORT FOR RESPONSIBLE FINANCE
Responsible finance is gaining ground in France and investment in companies taking into account extra-financial criteria (the famous ESG criteria) is more and more popular. It was therefore logical that this enthusiasm of individuals and institutions for socially responsible investments was reflected in the presence of SRI-labeled funds in the unit-linked supports of life insurance contracts. The regulatory framework goes even further! Thus, the Pacte law requires insurers, from 2020, to offer an SRI-labeled unit of account (UC) in their contract. Note that the funds thus labeled may concern investment funds but also real estate funds. In 2022, each life insurance must also offer a solidarity UC and a green UC, labeled Greenfin which aims to mobilize the savings of the French to promote the energy and ecological transition.
UNITS OF ACCOUNT: THE RISKY BUT POTENTIALLY MORE PROFITABLE POCKET OF THE LIFE INSURANCE CONTRACT
Unit-linked supports, in the context of low interest rates, are the investment vehicles that will allow you to boost the performance of your contract over the long term.
The French have understood this well since the net collection in units of account represented 40 billion euros in 2019, or 27% of contributions. All the same, funds in euros continue to represent the vast majority of deposits. It must be said that, for a few years now, the majority of insurers have strongly encouraged policy holders to turn away from euro funds in favor of UCs by increasing the costs of payment on euro funds and above all by increasing the return on the euro fund therefore. that part of the savings of the contract is directed to the CUs.
Life insurers tend in this way to turn away from their popular clientele with very limited appetite for risk, turning more readily to a Livret A than to units of account. Moreover, the wealthiest households now account for almost half of life insurance outstanding.
The tax advantages of life insurance
As we have seen previously, life insurance offers investors an advantageous tax framework in terms of taxation of earnings. These are taxed at 30% with the flat tax when the contract has been taken out for less than 8 years or when the outstanding amounts (all contracts combined) exceed 150,000 euros for a single person and 300,000 euros for a couple. Otherwise, the gains made via this support are taxed at only 24.7% (17.2% social security contributions and 7.5% tax). In addition, for contracts of more than 8 years, regardless of the outstanding amount of the contract, a reduction of $4,600 for a single person and $9,200 for a couple is also applied each year to the gains from redemptions, regardless of the choice of IRPP (income tax) or levy.
Life insurance also allows, as we have seen previously, to benefit from tax advantages during the transmission. It should be noted in particular that in the event of the death of the policy holder, the beneficiary is exempt from inheritance tax up to 152,500 euros if the payments were made before the insured’s 70th birthday and 30,500 euros if the payments were made. took place after the 70th anniversary of it.