51% of life insurance policyholders cite retirement as their primary reason for saving according to the Cercle des savers. Ideal for building up a retirement supplement in the form of income or a life annuity, life insurance also allows you to pass on part of your assets.
Favorite investment of the French, life insurance is a hybrid product that combines investment and guarantees. Depending on the objectives of its subscriber, it allows you to build up a supplementary pension paid in the form of a life annuity or a capital, or to transmit the funds placed there to one or more designated beneficiaries after his death, failing that to his heirs. Insurers and banks also offer mixed contracts: “You receive the capital or the life annuity if you are alive on the date provided for in the contract, otherwise it is the beneficiary you have designated in the event of death who will receive it”, specifies the French Banking Federation.
Tax incentives for life insurance
Main advantage of life insurance contracts: from the eighth year of detention, you can make a partial redemption (a withdrawal) or total of your contract while being exempt from tax on the capital gains generated. However, the system has limits: capital gains are exempt up to a limit of 4,600 euros per year for a single, widowed or divorced person and 9,200 euros per year for a couple subject to joint taxation. Beyond that, they are subject to the progressive scale of income tax (plus social security contributions) or to the fixed levy in discharge (preferable if the marginal tax bracket is greater than 14%) of 7.5%.
Since July 1, 2012, income (interest or capital gains) from life insurance contracts has been subject to social security contributions of 15.5%. Depending on the case, these social contributions are deducted at source when they are entered into the contract or when the contract is settled (surrender or death of the insured).
Please note that the option for the flat rate levy will be removed from 2014 (taxation of 2013 income).
Which contract to choose for life insurance?
Units of account, funds in euros… the vocabulary linked to life insurance can frighten savers unfamiliar with financial products. However, nothing is simpler than determining the formula adapted to your needs. Prudent savers will choose “euro” contracts with a guaranteed return. Those who are more comfortable with the stock market will turn to unit-linked units to take part in the management of their investment, while being aware that they are exposed to the vagaries of the markets.
Another solution: multi-support contracts which mix funds in euros and equities, with a distribution based on several profiles: cautious, dynamic, balanced… The choice of a contract is also made according to the investment horizon (8, 10, 15 years…) or its objective (purchase of real estate, transmission, annuity…). In any case, do not hesitate to have several banks compete in order to determine the one with the most favorable guarantees and fees.