Definition and benefits of a life insurance contract

Definition and benefits of a life insurance contract

Life insurance is the preferred investment of the French, thanks to its flexibility and advantageous taxation. What are the characteristics of this contract, how to choose its beneficiary or beneficiaries, and what limitation period applies to life insurance?

Definition and benefits of a life insurance contract

Life insurance is a savings and investment tool: you make payments regularly or not, which the insurance company places. The return on the investment will be more or less significant depending on the fund chosen. The French Insurance Federation indicates 144.6 billion euros were paid out on life insurance contracts in 2019.

Purchasing a life insurance policy can meet various investment objectives.

  • build-up and grow capital;
  • preparing for retirement ;
  • Could you pass on their heritage?

A principle is different from that of death insurance.

Note: life insurance is distinguished from death insurance, whose death capital is, above all, intended to protect loved ones in the event of death financially. Death insurance also covers you in the event of disability and irreversible loss of autonomy.

What are the benefits of life insurance as savings?

  • Funds invested in life insurance are not blocked: they can be redeemed at any time.
  • The capital or life insurance annuity paid in the event of the insured’s death does not form part of the estate’s assets. The persons designated in the beneficiary clause benefit from a reduction of €152,500 on inheritance tax or even a total exemption if it is a spouse or PACS partner.
  • The subscriber can freely choose the beneficiary or beneficiaries of the contract.
  • When the warranty has been open for eight years, the taxation applicable to redemptions is reduced. Life insurance products are subject to the progressive income tax scale or a flat-rate levy of 7.5%. The rate of social security contributions is 17.2%.

How life insurance works

Several types of payments.

You can fund a life insurance contract with three types of payments:

  • The initial payment is the amount you pay when you open the life insurance. Some insurers set a minimum amount for the first payment. This initial payment can be unique, but making others build up capital is better. 
  • Free additional payments: you can continue to fund your life insurance policy as soon as you wish/can.
  • Scheduled additional payments: you can choose a frequency for your settlements (monthly, quarterly, annually, etc.). This frequency can be modified at your convenience.

The sums paid can be placed on two distinct types of media:

  • Euro funds: this is the most popular option. Although their yield is lower, it is the most secure investment since the insurer bears all the financial risk. The loss of the initial capital is impossible, and the interest earned is definitively acquired thanks to a ratchet effect. You can only make money.
  • Unit-linked funds: their return is better, but the risk is higher. The value of the units of account may vary upwards or downwards. Depending on the evolution of the financial markets, you have a chance of loss of capital. The best is to mix the two to optimize its performance.

The beneficiary of life insurance: choice and impact of the death of the insured

The beneficiary of life insurance is the person to whom the capital or the annuity of the insurance will be paid in the event of the insured’s death before the end of the contract.

The life insurance subscriber can freely choose the beneficiary:

  • He may or may not be related to the insured. It can be a natural or legal person (an association, a foundation, etc.).
  • If this person accepts the benefit of the contract, then the insured cannot modify the clause without his agreement.

To obtain capital in the event of the death of the insured:

  • Anyone can ask to be informed if a life insurance contract has been taken out for their benefit by a person for whom they must then provide proof of death. This request is made at the Caisse des dépôts et consignations.
  • Within two weeks of receipt of the request, the Agira (Association for the Management of Information on Risk in Insurance) must inform the insurance company of the insured’s death.
  • From the receipt of the death notice, the insurer will have 15 days to ask potential beneficiaries for the supporting documents necessary to pay the capital within one month.
By aamritri

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