life insurance

What is the taxation when buying life insurance?

The term can be confusing. In life insurance, surrender simply means withdrawal. You can make a purchase on your contract at any time, whether it is:

a partial redemption: your life insurance continues but the capital is reduced;

a total surrender: your life insurance ends and you lose its tax precedence.

Your capital is never blocked! If you have an urgent need for cash, you can request a withdrawal from your bank / insurer by sending a simple letter.

If you want to build up retirement income, consider scheduled partial redemptions.

In terms of the taxation of the redemption of life insurance, everything will depend on the age of your contract (less than 4 years, between 4 and 8 years, + 8 years) and the time at which the payments will have been made. After 8 years, you will benefit from a deduction on the products generated by the capital and from very advantageous taxation.

When you make a withdrawal, only the winnings will be taxed. The part of your redemption corresponding to the capital will not enter the tax base. Your organization will inform you, on request, of the amount subject to taxation.

Taxation of payments made before September 27, 2017

Payments made before September 27, 2017 are subject to the old taxation of life insurance redemptions. Interest and capital gains resulting from your payments will be taxed in the event of redemption, as you wish:

on the basis of a fixed levy in full discharge (PFL) which is decreasing over time. This is the reason why life insurance is more and more interesting as the years go by.

Basically, your earnings will have to integrate your income tax base. The PFL is an option, which you will have to notify the insurer upon withdrawal. It is liberating and will be taken directly by the establishment. To this are always added social security contributions, currently at 17.20%.

Opting for the PFL is particularly wise if you are heavily taxed, that is to say that your tax bracket is high, especially if your contract is more than 8 years old.

If your life insurance policy is more than 8 years old, you benefit from an annual allowance of €4,600 on interest and capital gains (€9,200 for couples). This is one of the main interests of life insurance: you can withdraw a large sum in total exemption, and this each year. It is an excellent solution for savers wishing to build up additional income, at retirement for example.

The finance law for 2018 modified the rules regarding the taxation of redemptions in life insurance for payments made from the end of September 2017. Exit the PFL, the alternative to integrating gains into your income in the event of withdrawal is now the PFU, or single flat-rate levy

If your life insurance is more than 8 years old, you still benefit from the reduction of €4,600 per year on your interest and capital gains (€9,200 for a couple). On the other hand, only winnings corresponding to the “first” 150,000 euros will be taxed at 7.5%. Those generated by payments beyond this amount will be taxed at 12.8% (in addition to social security contributions). This threshold of €150,000 is increased for joint membership life insurance .

The PFU is not final (free of tax). If you opt for this solution, the insurer will retain the 12.8% on redemption but you will have to include your earnings in your tax return. This will be subject to regularization later.

Life insurance, when is it possible to avoid any taxation?

The legislator has provided for cases of force majeure , in which the subscriber can recover the capital + interest and capital gains without suffering any taxation. It’s about :

Some “old” contracts, opened during the “golden age” of life insurance, are completely exempt in the event of redemption , even today. This is the case as follows:

life insurance policies opened before January 1, 1983 ;

life insurance taken out after January 1 , 1983 and for which payments were made before September 25, 1997.

Life insurance is an excellent tool for inheritance transmission, since it also benefits from very advantageous taxation. Concretely, via the beneficiary clause, you can designate one or more persons (natural or legal) who will receive capital following your death. Most of the time, the capital will be treated outside the estate and taxed under very favorable conditions, compared to the inheritance rights in force. The applicable tax depends on:

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