MISCONCEPTIONS ABOUT LIFE INSURANCE CONTRACTS

Life insurance is an investment very popular with the French, however savers do not sufficiently exploit the advantages offered by this type of investment. Indeed, certain received ideas continue to stand in the way.

Life insurance, a few points to clarify

The French continue to favor life insurance to grow their savings and prepare for retirement. However, a significant number of life insurance policy holders play the card of caution by opting for the capital guarantee. On the other hand, those who hesitate to take the plunge are hampered by certain conditions which are ultimately poorly understood. Indeed, certain preconceived ideas prevent savers from fully benefiting from the advantages associated with this type of investment, the total of which amounted to 1,700 billion $ at the end of December 2018.

Poor performance linked to excessive caution

The volatility of financial markets is a major brake for savers, preventing them from investing in units of account (UC), an option that offers no capital guarantee.

The French opt instead for security and invest in a single-support contract entirely made up of funds in $, and therefore without risk of loss of capital. The figures put forward by the French Insurance Federation (FFA) prove it since 80% of outstandings recorded in 2020 are invested in funds in euros. That is to say that out of 1,000 $ invested in life insurance leads, 800 $ are placed in $ funds with guaranteed capital. But the choice of security has an impact on the return, which is only 1.5% on average in 2018.

However, you should know that with a good advisor, it is quite possible to dilute the risks inherent in a multi-support contract. The help of a professional makes it possible to build up a portfolio of UA in line with the level of risk that the saver is ready to tolerate. This calculated risk does not guarantee the capital invested, however it allows the saver to benefit from a better performance.

Availability of capital and taxation

The two strengths of life insurance are undoubtedly its advantageous taxation and its more flexible regulation than that of other savings schemes currently available.Many believe that by placing their money in such a contract, they have to wait 8 years to be able to dispose of it. This statement is totally false since at no time is the capital of a life insurance blocked. This availability of capital means that the saver can make a redemption whenever he wishes.The confusion probably lies in the taxation applied to the gains in the event of withdrawal. Indeed, the taxation of interest generated by savings depends on the length of the contract. To fully benefit from the tax advantages, the saver can wait 8 years before making a partial or total surrender of his contract. Beyond 8 years, in fact, he benefits from an annual allowance of 4,600 euros (for a single person) or 9,200 euros (for a couple). Otherwise, he can recover his assets at any time and benefit from taxation depending on the age of the contract at the time of withdrawal: 

• For the products resulting from payments made before September 27, 2017, they are taxable either by integration into income or by the application of the Lump Sum Payment (PLF) of 35% (for a redemption in the first 4 years of the contract), 15% (for a buy-back between 4 and 8 years of contract seniority) and 7.50% (for a buy-back after 8 years).
• For products resulting from payments made from September 27, 2017, they are taxable either by integration into income or by the application of the Single Lump Sum (PFU) of 12.80% (for a redemption before 8 years) and 7.50% (for a redemption after 8 years and after deduction).

For information, the earnings generated by life insurance are subject to social security contributions, the rate of which has been 17.2% since January 1, 2018.

Is owning life insurance relevant after a certain age?

The answer to this question is yes. A subscription after 70 years allows the beneficiary of the life insurance to benefit from favorable taxation and to amortize inheritance taxes.