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Life Insurance
Life insurance is often seen as a complex savings product, sometimes even perceived as being locked for several years. However, this notion is incorrect. In reality, life insurance is a flexible savings vehicle, much like a savings account or other banking products, offering significant advantages in terms of both returns and taxation.
At Whiteblock, we believe that life insurance is a cornerstone of wealth management. Here’s how it can serve as a complementary solution in your financial strategy.
What is life insurance?
Life Insurance: A Flexible Savings Tool
Life insurance is, above all, a flexible savings solution, far from the misconception that funds are locked for 8 years. It is a contract between a policyholder and an insurer, where the premiums paid are invested based on your preferences in various financial instruments. You have significant investment freedom, whether in euro-denominated funds with capital guarantees or riskier but potentially higher-yield options like unit-linked accounts, including ETFs (Exchange-Traded Funds).
While life insurance offers tax benefits after 8 years, this does not mean your money is tied up during that time. You can make partial or full withdrawals at any time without any penalties.
Advantages and disadvantages
Life Insurance: A Key Tool for Medium- and Long-Term Investment Strategies
1. Tax Advantages
One of the main attractions of life insurance is its favorable tax treatment, particularly after 8 years of ownership. Here are the key points to remember:
Taxation on Capital Gains:
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Before 8 years, gains are subject to a flat tax rate (PFU) of 30%.
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After 8 years, capital gains benefit from an annual tax allowance of €4,600 for a single person and €9,200 for a married or civil union couple, significantly reducing taxation on profits.
Inheritance Benefits:
Life insurance is a powerful tool for estate tax optimization. Upon the policyholder's death, transmitted funds are exempt from inheritance tax up to €152,500 per beneficiary. Any excess is taxed at 20% up to €700,000 and 31.25% beyond that—offering a significant advantage compared to traditional inheritance tax rates.
2. Enhanced Returns
In terms of returns, life insurance often outperforms traditional banking products like savings accounts or housing savings plans. Although returns on euro-denominated funds have declined in recent years, life insurance remains highly appealing for investing in unit-linked accounts, especially ETFs.
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Euro Funds: These funds guarantee capital and traditionally offer net returns higher than savings accounts. For example, while average euro fund returns ranged between 2.2% and 2.6%, the Livret A savings rate reached 3% in 2023.
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Unit-Linked Accounts: For investors seeking higher returns, unit-linked accounts provide diverse options, including stocks, bonds, and real estate. ETFs, in particular, are an attractive choice for life insurance due to their low management fees and diversification potential, allowing investment in multiple assets through a single product.
3. Flexibility and Customization
Life insurance also offers the ability to tailor the contract to your financial goals:
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Flexible Contributions: You can opt for ad hoc or scheduled payments depending on your savings capacity.
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Beneficiary Designation: You can name one or more beneficiaries in case of death, making it an ideal instrument for estate planning.
Life insurance is a versatile, tax-efficient, and customizable savings vehicle that can play a crucial role in achieving your financial and estate planning objectives.
Despite its many advantages, life insurance also has certain disadvantages that you should know about before subscribing to it.
1. Management and payment fees
Life insurance policies may include different types of fees, which vary depending on the provider you choose. These fees can impact the overall return on your policy.
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Payment fees: Some contracts charge fees for each payment. These fees can range from 2% to 5%, which can significantly reduce the amount invested. However, it is possible to find contracts without payment fees, particularly with some online brokers.
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Management fees: These fees are charged each year and vary depending on the chosen investment vehicle (euro funds or units of account). They are generally between 0.6% and 3% of the capital, depending on the nature of the investments. However, ETFs often allow you to reduce these fees, as they are passive funds with much lower management fees than active funds.
At Whiteblock, we help you compare different life insurance contracts to guide you towards the one that offers the best fees and the most advantageous conditions.
2. Redemption deadlines
Although life insurance funds are accessible at any time, redemption times can sometimes be a little longer than for other investments such as a Livret A. Typically, a life insurance redemption can take two to three weeks, depending on the insurer. However, some online brokers now offer very fast processing times, reducing the waiting time to just a few days.
3. Decrease in the return on euro funds
Another drawback is the downward trend in returns on euro funds. With rising inflation and historically low interest rates, returns on euro funds have declined over the years. However, by integrating units of account or ETFs into your contract, it is possible to boost the overall return.
And as you know, it is not by being cautious that you make money, you have to know how to take risks, certainly controlled ones, but staying in the euro fund or so-called "safe" or "prudent" investments is totally counterproductive.
Conclusion
In Conclusion,
Life insurance proves to be a powerful and flexible savings tool, offering favorable tax benefits and potentially higher returns compared to traditional banking products. At Whiteblock, we guide you in selecting the best life insurance policy tailored to your goals and investor profile.
Whether you're looking for a long-term investment, a source of additional income, or a solution to optimize your estate planning, life insurance can play a key role in your wealth management strategy.
Feel free to contact us for personalized advice and to optimize your investments.
Rappel sur la fiscalité des rachats de l'Assurance Vie
Source: placement.meilleurtaux.com