LIFE INSURANCE

Life insurance: "The French's preferred investment!" And for good reason, by the end of 2024, the total amount invested in life insurance reached €2,000 billion, far ahead of the Livret A and the LDDS (Sustainable and Solidarity Development Booklet) which together totaled €580 billion. The reasons for this attachment are numerous, and we will attempt to present them concisely, focusing on the essentials.

Life insurance is primarily a tax-efficient vehicle, within which an investor can hold different types of investments, whether guaranteed like euro funds, or as unit-linked funds (UC - "Unités de Compte"), invested in stocks and bonds. Historically, the French are cautious when it comes to the risks of financial markets, and over 70% of life insurance funds are still invested in guaranteed euro funds. For payments made in 2023, the share of euro funds is declining, but still represents 59% of new contributions paid by policyholders.

With interest rates rising since 2022, the returns on euro funds have increased, averaging 2.60% gross (before social charges of 17.2% and capital gains tax) for the year 2023. Meanwhile, the Livret A rate stands at 3% net but is expected to decrease to 2.5% starting in February 2025. Increasingly, investors seeking higher returns are turning to "Unités de Compte", typically in the form of UCITS (Undertakings for Collective Investment in Transferable Securities). There are also real estate investment options, such as SCIs, OPCIs, and SCPI (Real Estate Investment Trusts), that can be eligible in some life insurance policies.

Each life insurance policy is different: they don’t all give access to the same euro funds, the same unit-linked funds, and their fees (entry fees, management fees) can vary significantly from one contract to another and from one distributor to another. Therefore, it is essential to choose the right life insurance policy, and we are here to help you with this process.

Life insurance offers two main tax advantages:

1. Throughout the life of your contract, the capital gains tax regime is very favorable, and it becomes most advantageous after 8 years:

   • As long as you do not withdraw from your contract, you are not taxed on the unrealised capital gains, allowing you to capitalise on the interest of your contract for many years without any taxation. A notable exception concerns the social charges on the part of the contract invested in euro funds, which are levied once a year at the beginning of the year.

   • If a withdrawal is made before 8 years, the capital gain is taxed at the PFU (Flat-Rate Tax) of 30%, corresponding to 17.2% in social charges and 12.8% in capital gains tax. Note: you can opt to be taxed according to the income tax scale if your marginal tax rate is lower than 12.8%.

   • After 8 years, the investor will benefit from an annual allowance of €4,600 (€9,200 for a couple) on capital gains that can be withdrawn tax-free. Social charges of 17.2% will still apply. Above the allowance, a tax of 7.5% is due, which can go up to 12.8% if the total amount in all of the investor's life insurance contracts exceeds €150,000, with the option to opt for the income tax scale if it is more favorable.

2. In the event of death, life insurance allows a beneficiary allowance of €152,500 per beneficiary, which is transferred without any taxation. Additionally, the insured can designate as many beneficiaries as desired. Beyond this allowance, the transfer is taxed at 20% for the next €700,000 per beneficiary, then at 31.25%.

Attention: The €152,500 per beneficiary allowance applies only to premiums paid before the insured's 70th birthday. For premiums paid after the age of 70, a general allowance of €30,500 (not per insured) applies, which will apply to the amount of premiums paid, with the interest being tax-exempt.

We can work together to establish a diversified and personalised allocation that fits your concerns, which may include euro funds as well as unit-linked funds invested in stocks, bonds, and other alternative investments. We will prioritize high-performing funds with moderate costs, including the use of ETFs.

Optimal Conseil Patrimoine is committed to helping you choose a life insurance policy that matches your needs, without entry fees, which is still far from the norm in the financial advisory industry. Our independence and transparency regarding costs and fees borne by our clients are at the heart of our commitment to supporting you.