If you’re still hesitating about getting life insurance, these details might help you make a decision. So what is a life insurance policy? What are the pros and cons? And most importantly, what is the best age range to sign up and start pouring money into it?
According to the official website of the French administration, subscribing to a life insurance contract commits you to paying regular contributions. These then constitute your savings. “The insurer must make your money grow in order to be able to pay a capital or an annuity to the beneficiary (you or another person)” specifies the site. Your interests then vary depending on the type of “medium used to grow the savings: euros, units of account or multi-media”, adds the government. It is possible for you to benefit from this money before the end of your contract. But then, what are the advantages of this life insurance?
In the case of an estate, your life insurance contract takes on its full importance. Indeed, the beneficiaries could have interesting tax advantages depending on the age at which the subscriber signed his contract. Indeed, on the death of the insured, a tax charge is applied. Nevertheless, the designated beneficiary of the contract benefits from a tax deduction. This allowance also depends on the age at which the subscriber started to contribute.
Thus, for contracts signed before the age of 70, the beneficiaries have a reduction of “152,500 euros on the capital transferred, the deductible no longer reaches “only” 30,500 euros for all the beneficiaries when the payments have been made by the subscriber after his 70th birthday”, recalls Thibaut Lamy, investment and heritage journalist for Capital. Apart from the allowance, the General Tax Code has set very specific rules concerning the taxation of this capital. What does it consist on ?
The taxation of shares distributed to the designated beneficiaries of life insurance is very regulated. Indeed, “article 990-I of the General Tax Code (CGI) provides for taxation of 20% for the first 700,000 taxable euros (852,500 euros – the abatement of 152,500 euros) then 31.25% beyond that, sums invested after age 70 are subject to “classic” inheritance tax. Gilles Belloir, managing director of Placement-direct.fr, specifies to Capital that “all gains generated by payments after 70 years are exempt”.
Thus, depending on the type of contract, it is more advantageous to take out this insurance after age 70. However, another criterion comes into play: that of the amount of the payment. Should you start before or after 70 depending on what you want to put into it?
To optimize the taxation of beneficiaries on the death of the subscriber, it is necessary to consider the amount paid in total. Thus, Capital takes the example of two scenarios reported by a life insurance specialist from the Placement-direct.fr site. The profile studied is that of a saver whose “life expectancy of the saver has been evaluated at 23 years, the age determined by the INSEE mortality tables. She has one and only heir: her son” . For this same profile, two sums are studied: a payment of 100,000 euros for transfer duties of 20% and one of 500,000 euros for transfer duties of 40%.
For a payment of 100,000 euros, “the net capital received by the heir rises to 257,622 euros, against 247,718 euros for a payment before age 70, i.e. nearly 10,000 euros more”. For this type of payment, it is better for the subscriber to start paying this amount before the fateful age of 70. On the other hand, if it pays 500,000 euros, the only case where it is better to have subscribed to it before age 70 is if its return is less than or equal to 3%. “With 4% gross return, the capital received by the heir (net of inheritance tax) is 918,592 euros, against 887,051 euros with a payment made before this age limit”.
The age at which you take out this contract therefore depends on its performance and the amount paid. Moreover, if you want to pay before and after your 70th birthday, it is better to do so on two different contracts.
