Life Insurance Contract: What You Need to Know

The life insurance contract is one of the most popular financial products in France. It is used both as a long-term savings tool, a means of protection for loved ones, and an effective vehicle for wealth transmission. This article guides you through everything you need to know about life insurance contracts.

What is a life insurance contract?

A life insurance contract is an agreement between a policyholder and an insurance company, whereby the insurer commits, in exchange for premiums paid, to pay a capital or annuity to one or more designated beneficiaries, either in the event of life or death of the insured. This product is very flexible, allowing for great customization depending on the saver's goals.

The involved parties

In a life insurance contract, there are three main parties:

• Policyholder: The person who subscribes to the contract, pays the premiums, and designates the beneficiaries.
• Insured: The person on whose life the risk is based, often the policyholder themselves.
• Beneficiary: The person or entity that will receive the benefits in the event of life or death of the insured.

The different types of life insurance contracts

Euro contracts

Euro contracts are contracts that offer a capital guarantee. The funds are primarily invested in bonds, and the returns are guaranteed and capitalized each year. This type of contract is ideal for savers seeking security.

Unit-linked contracts

Unit-linked contracts allow investment in a variety of assets, such as stocks, bonds, or real estate investment trusts. The capital is not guaranteed, and the value of the contract fluctuates based on the performance of the financial markets.

Multi-support contracts

Multi-support contracts combine the advantages of euro contracts and unit-linked contracts, offering both security and potential returns. The saver can allocate their investments among different options based on their objectives and risk tolerance.

The benefits of life insurance contracts

Life insurance offers many benefits:

• Tax advantages: After 8 years of holding the contract, capital gains benefit from an annual allowance before taxation, making this product very attractive in the long term.
• Wealth transmission: Life insurance allows the transmission of significant sums outside of inheritance, with advantageous taxation for the beneficiaries.
• Flexibility and adaptability: The life insurance contract allows deposits and withdrawals at any time, as well as the ability to switch between different investment options.

Life insurance taxation

Taxation of contributions and capital gains

The contributions made to a life insurance contract are not deductible, but the capital gains are taxed favorably after 8 years, with an annual allowance of €4,600 for an individual and €9,200 for a couple.

Taxation in the event of death

Death benefits are exempt from inheritance tax up to €152,500 per beneficiary. Beyond that, a flat tax of 20% is applied to amounts between €152,501 and €852,500, and 31.25% above that.

The risks associated with life insurance

Unit-linked fluctuations

Unit-linked contracts present a risk of capital loss, as the value of the contract is linked to the performance of the financial markets.

Fees and costs

Life insurance contracts include entry fees, management fees, and arbitration fees that can affect the overall return of the contract. It is essential to understand these fees before subscribing.

How to choose your life insurance contract

The choice of a life insurance contract should be based on your financial goals, risk tolerance, and investment horizon. It is advisable to compare the different contracts available on the market and seek the help of a financial advisor if necessary.

Conclusion

Life insurance is a powerful tool for saving, protecting, and passing on wealth. Thanks to its flexibility, favorable taxation, and customization options, it meets a wide variety of financial needs. Whether you want to save for retirement, protect your loved ones, or plan your estate, life insurance can play a key role in your wealth strategy.