Life Insurance, 20 Mistakes to Avoid July 11, 2017

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reserves the most advantageous tax treatment for contracts with a duration of at least eight years: the benefits withdrawn as from that period benefit from an allowance of 4,600 euros each year (9,200 euros for A married couple) and any excess is taxed at the reduced rate of 7.5%.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.

Categories Life Insurance

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