Life insurance and inheritance tax
Life insurance is a way of protecting or favouring one or more named individuals in the event of one's death. The tax treatment of the capital paid out varies depending upon the policy and is a means of avoiding inheritance tax.
What is life insurance?
Life insurance is a contract by which the insurer undertakes to pay a capital sum to a named person in the event of the policyholder's death, in exchange for the payment of one or more premiums.
How are the beneficiary or beneficiaries chosen?
Naturally the policyholder is totally free to name the beneficiary or beneficiaries of their choice. This can be done at any time, either on the day on which the policy is signed with the insurer, or at a later date. In practice, the beneficiary is named in the policy itself or in another document, such as the policyholder's will , for example.
Total secrecy can be guaranteed if the beneficiary is named in the will, which is a considerable advantage. This gives the policyholder total freedom, particularly if they wish to change the beneficiary or beneficiaries-which they can do without having to explain their action to anybody. If the policyholder does choose this option, it is advisable to specify in the insurance policy that the beneficiary will be named in the will, and to include the name and contact details of the notaire who has it in their possession, as appropriate.
Are life insurance policies subject to inheritance tax?
On the death of the policyholder, the sums paid to the beneficiary of the life insurance policy do not form part of the deceased 's death estate. They are therefore not subject to any taxation. This applies in particular to contracts entered into for the benefit of the spouse or partner of Pacs, certain non-profit organizations and, under certain conditions, contracts for the benefit of the brothers and sisters.
Where other beneficiaries have been designated, the rules are as follows:
- If the policy was taken out after 20 November 1991, the share of capital corresponding to premiums paid by the policyholder after the age of 70 are subject to inheritance tax (under the ordinary law), after an initial allowance of €30,500; Sums received by the beneficiary (or by the beneficiaries) that correspond to premiums paid by the policyholder since 13 October 1998 have the benefit of an allowance of €152,500 per beneficiary (however, this does not apply to premiums paid by an insured aged over 70 in respect of a policy taken out since 20 November 1991, which are subject to inheritance tax after an initial allowance of €30,500) ; and sums are then taxed at a rate of 20% on the fraction of taxable share of each beneficiary not exceeding €700,000 and 31.25% beyond.
- An additional allowance of 20% applies before the abatement of €152500 in the case of a "lifetime" contract.
Do not hesitate to consult your notaire. They can advise you about the policy that is most suitable for your personal situation.
- If you have already taken out a policy and would like to change the beneficiary clause, a notaire will help you with the wording.
- If you are the beneficiary of a life insurance policy, you should also consult your notaire before you do anything. They can explain the myriad tax implications.
Did one of your relatives has just died?
Refer to the guide "Estate settlement".
- I inherited a property during my marriage. I would like it to be included in the community of property existing between me and my wife. I do not want to make a change of diet. Is it possible to use a Property Investment Company?
- My mother-in-law died last month. She only had one son, my predeceased husband, with whom I had 2 daughters. In his estate, there is a debt due for the housing of the elderly. Should I encourage my daughters to give up the estate?
- I am married under the separation of property regime and have two children. If I die, do my children inherit all my wealth?
- A husband dies leaving his spouse, father and two brothers. How will the estate be devolved in case of renunciation of the father?