What is life insurance?

Definition and fundamental principle:

Life insurance is an insurance contract that allows the policyholder to build up capital over the medium or long term, while preparing the transfer of their wealth within a favorable tax framework.

This life insurance savings product offers the possibility to make premium payments that will be invested in various assets, with the objective of either building capital, receiving an annuity, or transferring assets to designated beneficiaries in the event of death.

The main objectives:

Life insurance serves to meet several key goals, combining savings, wealth transfer, and tax optimization.

Contract Operation:

Thanks to its flexibility, life insurance adapts to your subscription choices, payments, and investment options to best meet your wealth management objectives.

Subscription and Payments

• Subscription can be individual or joint (depending on the marital regime).
• Payments can be made freely or on a scheduled basis according to the subscriber’s needs and saving capacity.

Investment Options 

• Euro funds: a secure life insurance investment with guaranteed capital. The life insurance rate is generally low but stable and set annually by the insurer.
• Unit-linked funds: various options (equities, bonds, real estate, structured products) offering higher return potential but without capital guarantee. These funds are subject to financial market fluctuations.

Contract Duration

• Flexible duration, with the possibility of partial or full withdrawal at any time.
• Recommended investment horizon of 8 years to optimize life insurance taxation and fully benefit from tax allowances.

Taxation of redemptions and tax benefits

The taxation of gains realized upon redemptions depends on the duration of the contract and the date the premiums were paid:

• Premiums paid since September 27, 2017:

Application of the flat tax (PFU) of 12.8% before 8 years, then a reduced rate of 7.5% thereafter, with an annual allowance of €4,600 for a single person (€9,200 for a couple).

• Premiums paid before September 27, 2017:

Decreasing rates depending on the contract duration (35%, 15%, 7.5%) or option for the progressive income tax scale.

Redemptions are also subject to social contributions (17.2%) and may be subject to the Exceptional Contribution on High Incomes (CEHR).

Beneficiary clause and estate transfer

The beneficiary clause allows the free designation of one or more persons who will receive the capital in the event of the insured's death. This provision offers great flexibility to organize estate transfer outside of inheritance, with partial or total exemption from inheritance tax within certain limits.

Taxation related to Real Estate Wealth Tax (IFI)

The redemption value of contracts including real estate unit-linked funds must be declared within the scope of the Real Estate Wealth Tax (IFI), according to the fraction of real estate assets held.

Luxembourg life insurance: an additional option

The life insurance contract governed by Luxembourg law offers access to dedicated or collective internal funds, with a wide range of investment options. There is no withholding tax on income of Luxembourg origin for non-residents. The applicable taxation depends on the subscriber's country of fiscal residence.

Advantages of life insurance

This solution combines major benefits in terms of taxation, flexibility, and investment choices, thereby offering a privileged framework to grow and transfer your wealth.

Specific Use Cases

Life insurance adapts to different life situations, offering concrete solutions to prepare for retirement, organize wealth transfer, and ensure your family’s financial security.

• Retirement Preparation: Using life insurance as a supplementary income through scheduled withdrawals or an annuity.
• Wealth Transfer: Designation of specific beneficiaries to transfer capital outside of inheritance, benefiting from favorable taxation.
• Family Protection: Payment of a death benefit to designated beneficiaries, ensuring financial protection in the event of the insured’s passing.

Associated Risks

Like any investment, life insurance carries certain risks that it is important to understand in order to make informed decisions adapted to your profile.

Glossary