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Why Take Life Insurance? July 11, 2017

Why take life insurance? The principle

A life insurance allows both to transmit a capital to his relatives in the event of death, but also to constitute a saving and make it grow to realize life projects. To sum up, the biggest asset of life insurance is its ability to serve several purposes: succession, donation, insurance, retirement and of course remuneration. As a general rule, the policyholder defines the beneficiary (ies) of the life insurance who will have the capital and the annuity guaranteed under the life insurance policy in the event of the subscriber’s death. Third parties appointed by the holder of the life insurance are not obliged to be kept informed, as no acceptance by them is required for the contract to be valid.

Why take life insurance? Advantages

  1.  Its diversity

    The diversity of life insurance is on several levels: its multiple goals, as we have just seen, but also on how to invest. With life insurance, it is possible to invest on bonds, stocks, gold or real estate while maintaining the same contract and the same funds. This is the principle of life insurance in units of account .
    Why take life insurance in units of account? Not only to try to earn more but especially to define a risk profile and investment that suits you. For example, a person may decide to allocate their investments as follows:

    • 55% of its capital on a secured fund
    • 30% of its capital on a balanced fund
    • 15% of its capital on a riskier fund
  2. Its security

    With life insurance, you also have the choice of going on a totally guaranteed investment. This is the principle of the life insurance in euros . With this type of investment, the amount of your capital is guaranteed.
    Why take life insurance in euros? To take no risks and receive attractive compensation. Life insurance in euros has become the preferred investment of the French in 2015.

  3. Taxation

The taxation of a life insurance is very advantageous for several reasons.

  • Taxation in the context of a buy-back policy

Why take life insuranceWhy take life insurance because of its taxation? The taxation of life insurance is degressive over the years. For example, suppose your life insurance policy earns you € 1,000 interest and you want to withdraw it. How much will you be taxed if you apply the degressive scale? If the contract is between:

  • 0 to 4 years, 35% of the interest is withdrawn, ie 350 €
  • 4 to 8 years, 15% of the interest is withdrawn, ie 150 €
  • After 8 years, 7.5% except for capital gains exceeding the threshold of 4600 € for a single person or 9 200 € for a couple, ie 0 € in our example. Interest is therefore exempt from tax!
  • In all cases, social levies must be applied.

Now you understand why taking life insurance is advantageous, with such a system of tax degressive.
NB : You can opt to choose your income tax level if it is more interesting than the 35%, 15% and 7.5%.

  • Taxation of life insurance in the event of death

In the case of an estate, the sums received by the beneficiaries designated in the life insurance contract are exempt from inheritance tax. Why take life insurance, because it is a great way to manage a succession at lower tax burden!

               – In the case of payments made before the insured’s 70th birthday

There is no taxation up to € 152,500 per beneficiary, beyond which a flat rate tax of 20% is applied. Since July 1, 2014, a flat tax rate of 31.25% is applied in excess of € 700,000.

               – In the case of payments made after the insured’s 70th birthday

All contracts with capitalized capital gains of less than € 30,500 are exempt from inheritance tax. Beyond that, interest is subject to inheritance tax.

In both cases, it is necessary to know that the products are subject to the social levies but to manage a succession, one understands better why to take a life insurance.

      4. His remuneration

Even if taxable, life insurance is more remunerative than a non-taxed savings account, provided you choose the best life insurance. So why take life insurance? To win more, here is the proof:

Take the best life insurance in 2015 in euros (to take a totally comparable risk-free product): Fortunéo life insurance according to our classification with a remuneration of 3.85% observed in 2014 and the cheapest management fees on the market limited to 0, 60%.

Compared to the regulated book that offers the best remuneration (that of LEP, savings booklet, for  example that of Société Générale ) proposing a rate of 1.50% exempt from taxation, Life insurance remains better with an equivalent net rate of 1.60% (after applying 35% tax + 15.5% payroll taxes)

      5. Its complementarity with other savings solutions

Life insurance is a good complement to regulated booklets such as Livret A, LDD or tax booklets. Indeed, the booklet makes it possible to constitute a saving of precaution and to be able to face various unexpected due to the immediate availability of its money in case of need. Although having a precautionary saving is a good thing, it is also important to have another saving that is sustainable in order to be able to carry out bigger projects in the future. Why take life insurance? It is less tempting to make withdrawals with life insurance because of the favorable conditions that it proposes in terms of its taxation. You will find the best booklets on our comparator:

► FIND THE BEST SAVINGS BOOKLET

      6. Availability of funds

Misconceptions about the availability of his money on life insurance circulate. The money invested in this type of support is not blocked for 8 years. What needs to be understood and especially remembered is that it is totally possible to make withdrawals before the deadline. The disadvantage of withdrawing money before the required date is at the level of capital gains, since it will be taxed .
Note: a partial purchase of his savings does not result in the closing of the contract. It is always possible to feed it without having to subscribe a new one.

      7. Freedom of payment

Why take life insurance? Because a holder has the advantage of being able to save when he wants to the desired amount. So why not take life insurance!

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Life insurance: the 12 most frequently asked questions

The Revenue made a selection of the twelve questions most often asked by his readers. Here are our answers exclusively.

The Revenue made a selection of the twelve questions most often asked by his readers. Here are our answers exclusively.

1) “Can I change my life insurance account?”

No. Life insurance is not transferable from one bank to another or from one insurer to another. Some contracts are like contracts Madelin or Perp (popular retirement savings plan), but not the classic life contracts held by some 14 million French people.

What if you have a contract that does not suit you, whose performance is disappointing for example? You can close it. Pay attention to the tax consequences. It is often preferable to put him to sleep and not to make further payments. You can also and this is an intermediate solution: make partial withdrawals (“buyouts” in the lingo of the insurers) and put the sums on a more modern, more efficient contract.

In summary, your contract is not transferable but you have a range of solutions if you are not satisfied with your placement.


2) “We would like to have your opinion on the advantages or disadvantages of a succession of the pre-retirement clause applied to life insurance”

There has been a legal debate that has been going on for more than twenty years to find out what the survivor’s life contracts should become in the event of death. The question is simple: does this contract, fueled by the couple, have to enter the estate of the deceased or not? The financial and fiscal stakes are colossal. Today, the answer is yes. It is not good news. That said, the tax doctrine can evolve.

Two remarks:

– There are multiple interactions between matrimonial regimes and life insurance. We have to be concerned. Talk to your insurer. To his notary.

– There are different parries to what is called the “Bacquet answer”. Co-accession, cross-membership. It is also possible to adjust his matrimonial regime, in particular with a precipitation clause that allows the unresolved contracts to be attributed to the surviving spouse without having to be reinstated in the estate assets of the heirs.

What to remember: if you are married under the legal regime of the community reduced to acquests as 80% of the French you feed a contract opened in the name of gentleman with money saved by the couple. If madame dies: half of the sums appearing on the contract will fall into the estate, which may require to break the contract. To avoid getting there and reducing rights there are solutions. To be studied on a case by case basis with its insurer and its notary.


3) “I will inherit a sum of about 100,000 euros. Should I opt for a safe euro fund or a multi-unit life insurance policy? “

There are two types of life insurance contracts. Classic life insurance with monosupport contracts in euros, with no risk on capital, with a ratchet effect on interest, which means that once registered, they can not be withdrawn. More recent and more modern multi-product contracts are more complex. This type of contract is like an envelope in which there are different funds: the euro fund of monosupport contracts, but also funds invested in shares. Depending on the investment media chosen, your investment is more or less risky.


4) “How can I boost my life insurance policy?”

The simplest solution is to subscribe to a so-called “structured” fund,which promises you a portion of the stock market increase while offering you a guarantee on partial or total capital excluding fees on installments and contract management. This is the easiest solution but with a high probability of disappointment because this guarantee has a cost and the performance of the fund depends on a mathematical formula not always readable even for a savvy saver.

90% of life insurance policies, once subscribed, take dust at the bottom of a drawer. It is a mistake. A life contract is managed a bit like a securities account. This is not to multiply the round trips during the day but to carry out some arbitrations a year in order to adapt the content of your contract to the evolution of the financial and economic situation. Depending on your personal situation and your objectives, dare the Exchange for 5 to 20% of the sums invested in your contract.


5) “Is money in a life contract stranded for eight years?”

In a modern life insurance contract, which the insurers call “pay and withdrawal contract”, you can, as the name indicates, pay and withdraw the money at any time. With a few nuances: many contracts provide a minimum amount of payment, ranging from one hundred euros to several thousand. Similarly for withdrawals. The insurer may impose, under the general conditions of the contract, a minimum amount to be withdrawn. Sometimes, it allows the withdrawal of the sums invested only after one year.

Fiscally speaking, it is only after eight years that life insurance becomes interesting: the tax levy is less important, and above all it is possible to withdraw every year from his contract, without any taxation, 4,600 euros of Earnings for a single or 9,200 euros for a couple.


6) “Is it still worthwhile to appoint a spouse as a beneficiary of a life insurance contract?”

The law to promote work, employment and purchasing power (Tepa), adopted on August 21, 2007, substantially changed the law of inheritanceby totally exempting the subscriber’s spouse or partner from paying these rights, A PACS.

At first glance, it may seem useless to pass on tax-exempt capital to someone who no longer has to pay for it. But it is possible, in this way, to give his spouse more than the law provides for inheritance. However, before acting, it is better to consult a notary or the wealth management service of the insurance company. It is possible to protect your spouse by other means, such as a dismembered donation or a change in the matrimonial regime.

If you have children from a previous union, you will have to reconcile spousal protection and the interests of the children. As such, it may be more effective to appoint beneficiaries of a contract to the children rather than the spouse.


7) “I am considering taking out a life insurance policy and I am concerned about the wording of the beneficiary clause …”

You are right to be interested in a key part of your life contract. The beneficiary clause must always be drafted with care. If this is not the case, your capital could be cashed by someone who is not the one you want.
Reminder: Life insurance remains in France without succession. This means that in the event of death the capital entered in the contract goes to the beneficiaries designated by the subscriber and not to the legal heirs designated by the Civil Code.

Contracts often include a standard clause providing that the principal will be paid “to the spouse; Failing that, to children born or to be born, living or represented, in equal parts; In default thereof to the heirs or assigns of the subscriber “.

Think of the will as well. This is a good method to name one or more beneficiaries without canceling the tax benefits of life insurance. This allows you to change when you want while offering maximum discretion.
Think of naming several beneficiaries. Failing this, the capital could reinstate the estate if the beneficiary himself died on the day you disappeared.


8) “What do you think about Luxembourg life insurance policies? “

These products are attractive to wealthy and well advised savers. Contrary to popular belief, they are not of interest for tax purposes. Worse, even without making a repurchase, you must carry them in your income tax return like all your accounts held abroad. And of course they come back to the taxable base at the ISF.

Luxembourg life contracts have two strengths:

– The legal firewalls of multi-unit contracts would allow them to resist better in the event of a systemic crisis that would cause the failure of large insurance companies.
– Their greater management flexibility. You can put real estate, unlisted shares, vivid securities, change managers more easily, invest in assets listed in different currencies.

Main drawbacks:
– Sometimes high fees
– Lack of transparency and responsiveness of contract management services.
In short, they are reserved for wealthy savers (over 250,000 euros per contract).


9) “I have 50,000 euros to place. I hesitate between feeding an old life contract or opening a new one? “

Feed your old contracts, if they meet your needs in terms of returns and diversification . If not, enter a new Trophée d’Or du Revenu contract. It is recommended to hold several life contracts to diversify and optimize its taxation, in the event of withdrawal in particular.


10) “My life insurer has just informed me that it will no longer reference the fund on which I am invested. Is this practice legal? “

The Insurance Code (Article R 131-1) stipulates that “the contract shall provide for the manner in which, in the event of the disappearance of one unit of account, another unit of account of the same kind shall be substituted for it by an addendum to the contract “.
So much for the theory. The practice is more complex. When you have a life insurance policy that offers multiple media options, various events can change the list of accessible funds. The company that manages a fund may decide to merge it with another or create new shares, one for individuals, one for institutional investors, for example. A fund may also disappoint and no longer be offered.

Review the general terms and conditions, in particular the appendix to the presentation of the investment documents providing for the procedure for substitution, including the possibility of arbitration without charge.


11) “My mother is 72 years old, and I wonder for her: is life insurance a good investment after the age of 70?”

Yes, life insurance remains attractive after 70 years. On the tax side, you have two advantages: the payments are exempt from inheritance tax in the amount of 30,500 euros, and all the gains generated by your payments after 70 years are totally exempt from duties. Attention, there are some precautions to take. To avoid worries with the tax or your heirs, the amounts of your payments must not be exaggerated in relation to all your assets.


12) “I have taken out ten life insurance contracts. I know it’s too much, but I do not know how to do the housework … “

Like you, many savers subscribe to life insurance “to take a life” or because they benefit from attractive underwriting conditions. Then they no longer touch it, tetanized at the idea of ​​closing a contract that gives them certain tax advantages for income tax or inheritance tax.

There is no tax benefit to maintain an uninteresting investment. Especially when the sums placed are weak. You should consolidate your savings into the euro contracts and the euro funds of the most profitable multi-holdings. Do not hesitate to close the oldest, often mediocre contracts. Money paid before October 13, 1998 in contracts opened before November 20, 1991 is totally exempt from inheritance tax. This is an advantage only for large heritages. The others are, in any case, exempt from inheritance tax.

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Life Insurance, 20 Mistakes to Avoid

Life insurance, with nearly 1,500 billion euros invested, is the preferred investment of the French. Become a common financial product, sold by countless networks and for all levels of wealth, it is a simple financial product. However, its legal, fiscal and financial features make it more complicated than it seems. So, to get the most out of it, it is better to lean on it twice and avoid falling into the most frequent …

1. Waiting to Open a Contract

Life insurance reserves the most advantageous tax treatment for contracts with a duration of at least eight years: the benefits withdrawn as from that period benefit from an allowance of 4,600 euros each year (9,200 euros for A married couple) and any excess is taxed at the reduced rate of 7.5%. It does not matter when the money was paid, because only the date the contract was opened is taken into account.

The board: “We have to open one or more contracts as soon as possible, even with modest sums, to start turning the tax clock,” recommends Christian Pruvost, director at Natixis Assurances. So, when you have big sums to invest later, you will not have to wait long to take advantage of the exemptions.

2. Betting on a single insurer

Having life insurance is good. Having more is even better. This allows you to diversify risks, limit the consequences of an insurer’s default and benefit from a greater financial openness, as each contract has its own range of investment funds. The return of a fund in euros also varies from one company to another. This will limit the risk of underperforming one of them. You will also be able to juggle with different beneficiaries. The number of life insurance is not limited, so do not deprive yourself.

The advice: Do not disperse, because managing multiple contracts can quickly become problematic.

3. Decide without looking at all costs

When signing a contract, most investors focus on the entry fees, which are charged on each installment. It is true that they reduce the amount invested by as much and delay the moment when the money begins to bear fruit. However, they are not the most handicapped: those taken annually for management are much more burdensome in the long term, since they are taken each year on an increasing capital. Attention also to the costs of arbitrations. While many contracts, notably on the Internet, do not charge them today, some insurers continue to have a heavy hand by levying up to 1% of the amounts, which slows down investors when they change their course of saving .

The board: Not more than 2% on entry fees, less than 0.7% for management fees, and 0% on arbitrations. It is below these levels that a contract is considered cheap. Be wary if the rating is higher, unless the sale of the contract is accompanied by very specific advice.

4. Subscribe on a promise of rate

3% guaranteed next year? This is the kind of promise to which many underwriters want to succumb. “This is a mistake, says Aymeric Oudin, director of MACSF, as it is a short-term guarantee, Not necessarily strongly related to the real return that the fund will have in euros, the guaranteed compartment of life insurance, over the long term. ” Do not forget that a contract is expected to last several decades …

Tip: Look at the performance of the fund in euros over several years and its trend. The best in the market do not make promises.

5. Invest only in the fund in euros

The guaranteed euro fund of life insurance resembles a martingale: it yields more than all risk-free investments, it can never lose value, and interest accumulated over time benefits from the same security. No wonder that life insurance holders spend more than 85% of their investments. Problem: its performance is eroded from year to year. It fell to an average of 2.9% and is not expected to be better in 2013. “Diversifying its contract with real estate, bonds and shares is strongly recommended, it is the best way to find Profitability and to break free market cycles, “said José Fernandez, director at the UFF.

Tip: Keep the money in the euro money you need quickly. And take the air offshore for the money that will remain invested in the long term … but by choosing quality funds, which have proved themselves.

6. Selling when markets fall

You invested in a stock holder and resold it when it dropped 10% or more? Missed. You have not been able to take advantage of the rise in share prices when the stock market has started to rise again. As for a stock exchange, it is necessary to know how to make the round back and to continue to invest in the turmoil, even to moderate the sums paid. You will benefit from it when the cycle is reversed. “It is recommended not to take a hot decision and take stock once or twice a year to make decisions based on deep market developments, warns José Fernandez.Il Is better to sell after a rise and thus put its gains at the shelter. ”

Advice: Beware of automatic stop-loss trading, because they take you out of the markets and make your losses come true, but do not allow you to return to them quickly if they go up again .

7. Investing after 70 years on an old contract

It is a good idea to continue investing in life insurance after 70 years, because new benefits are added to those acquired before that age. “But it is better to do so on a new contract, warns Aymeric Oudin. Failing that, if you need money and you make a redemption, it will be levied proportionally on the two tax compartments: the one before the age of 70 and the next. ”

Advice: Open a contract after 70 years to receive your new payments and make your repurchases on this contract as a matter of priority in order to preserve the inheritance advantages acquired before that age.

8. Not specifying re-use of own property

A classic. A person married under a community plan receives a donation or an inheritance and then invests it in his life insurance. Result: the contract belongs to the community and half of the money goes to his spouse, in the case of a divorce, for example. “To avoid this, it is enough to make a declaration of re-employment at the time of investing, Of money remains identified as a property, “advises Marie-Hélène Poirier, legal and tax manager at Swiss Life.

Tip: Do not mix your own property with the household life insurance. It is better to invest this money in a specific contract, even if it means appointing the beneficiary spouse.

9. Designate a single beneficiary

The beneficiary clause of a life insurance contract makes it possible to designate the person or persons to whom the capital will revert on the death of the insured. It is very important because it conditions the civil benefits (life insurance is not part of the estate) and tax (exemptions of rights) from the contract. It is therefore necessary to avoid designating a single beneficiary, since if the beneficiary disappears before the insured person, there will be no one appointed to the contract and the latter will return to the estate, with the devolution and ordinary taxation.

The board: Always plan several ranks of beneficiaries to deal with this eventuality, adding “failing” after each one (“My spouse, failing my children born or unborn, failing my heirs”). Thus, there will always be one or more designated beneficiaries who will fully benefit from the benefits of life insurance.

10. Do not write a specific clause if you are paczed

“My spouse, failing my children”: it is the order of beneficiaries that most contracts provide in their standard beneficiary clause. If it is valid for a married couple, “it is not for pacsed persons, because the partner does not have the quality of spouse,” warns Marie-Hélène Poirier.

Advice: To return your capital to your PAC partner, replace the words “my spouse” with “my partner”. And if you get married later, consider updating the clause. It’s free .

11. Designate the beneficiary spouse by name

The best is often the enemy of good. Evidence with this frequent designation: “My spouse, Mr. or Mrs. X.” In the event of a subsequent divorce and remarriage, the insurer will not know whether to pay the capital to your spouse at the time of death or to the one you nominated. He will therefore ask the court to decide, and your wishes may not be answered.

Advice: Simply designate your “spouse”, specifying: “Not divorced, nor separated from body”. It is the person who will have that quality at your death who will receive the capital. Except, of course, if you really want to benefit your current spouse, whatever happens thereafter.

12. Forgetting Representation and Waiver

Another classic: an insured person designates his children as beneficiaries with the will that they be treated equally. If one of them disappears prematurely, only the surviving children will share the capital. The children of the disappeared child will not be entitled to anything. “The mechanism of representation [editor’s note: grandchildren take the place of their relative] is not presumed. Explains Aymeric Oudin. Same, if you want one of your children to give up the capital provided in his favor for his own children: “If the renunciation is not indicated in the clause, it can not take place and the children of the renunciation n ‘Are entitled to nothing,’ explains Anne Moreau, director at L’Afer.

Advice : Indicate in the beneficiary clause: “My children, born or unborn, living or represented as a result of pre-death or renunciation.” Thus, all cases will be covered.

13. Designate beneficiaries as beneficiaries

It is better not to use words that you do not fully master in the designation of the beneficiaries, as this can create unpleasant surprises. Thus, if you indicate in the clause that the capital will come back to your “beneficiaries”, it is your heirs who will receive it, but also your creditors!

The advice: If you are not a lawyer, do not start alone in the drafting of a tailor-made clause. Ask your advisor or the insurer for advice.

14. Using an inheritance vocabulary

It is possible to write the beneficiary clause of your contract by will. But in this case pay attention to the words used: do not indicate that you “bequeath” the capital, “because, for the judges, this word implies that you intend to include capital in the succession,” decrypts Marie- Hélène Poirier. As a result, he will lose the civil and tax benefits associated with life insurance.

Advice: Write instead that the life insurance capital is “allocated” to the person you have chosen. Then there will be no challenge.

15. Dismember without planning

Dismemberment of beneficiary clauses is fashionable. It makes it possible to attribute the enjoyment of capital to a person, usually the spouse, and the bare-owner to others, the children most often. It is an interesting tax trick: the children will be the creditors of the spouse and will therefore receive the value of the life insurance without death duties on his death. Please note that the allowance of € 152,500 on the fees payable at the time of the insured’s death is shared between the usufructuary and the nude-owner (s). “In the absence of links between the usufructuary, Owner, for example a new spouse and children of a first bed, the clause must be adapted to provide for the protection of the nude-owners, “warns Marie-Hélène Poirier. Otherwise,

Counsel: In a reconstituted family, seek advice from a lawyer to dismember the beneficiary clause, and rule out the possibility of a “quasi-usufruct” because the usufructuary enjoys the entire capital and can spend it. The children’s claim is only worth the wind …

And also

16. Recover your money in one go

Avoid buying back your contract for more than eight years in the same year if it is well stocked: you would benefit only once from the income tax deduction (4,600 euros of gains, or 9,200 euros For a couple). As far as possible, it is better to spread the exit over several years, to benefit several times from the abatement.

17. Choosing the Annuity When Paying the TFR

Taxpayers who are subject to the ISF, are liable to annuity: the constituent value (the transformed capital) will be added to your entire assets, even if you no longer have them available.

18. Forget to specify the mode of taxation on exit

When making a redemption (withdrawal of money), tell the insurer the method of taxation chosen. “Failing that, the withdrawn earnings will be added to your other income and will be taxed according to your marginal tax bracket,” warns Anne Moreau. The flat-rate levy is almost always more attractive for a contract of eight years and more.

19. Redeeming a very old contract

Contracts entered into before November 1991 and those entered into before 1983 contain inheritance benefits that are now unavailable. Try to keep them to optimize your succession and transmit without rights, or with reduced rights.

20. Writing a bankrupt profit clause

For a beneficiary clause to be executed by the insurer, it must be properly drafted and legally incontestable.

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