Life Insurance and Estate Planning: New Law
Life insurance is a savings product that is highly valued for its tax advantages and for its role in transferring wealth. It allows you to pay out a lump sum to the person or people of your choice without that amount being included in the estate.
- Beneficiaries of a life insurance policy can receive up to €152,500 without having to pay any estate taxes. Above that amount, the tax treatment depends on the policyholder’s age and the amount of the death benefit.
- Bills are regularly introduced to change the tax treatment of life insurance, which remains unchanged for the time being.
- However, a temporary tax exemption has been adopted for the year 2026 to allow premiums to be transferred via gift entirely tax-free. The holder of a life insurance policy may thus gift, during their lifetime, up to €152,500 per direct-line beneficiary.
The Concept of Life Insurance and Its Role in Estate Planning
Life insurance is a financial vehicle that allows you to save and build up capital over the medium and long term.
How Life Insurance Works
- When you purchase a life insurance policy, you agree to pay a sum of money (called a premium) to an insurer on a regular basis (monthly, quarterly, semiannually, etc.) or at your discretion. You may, in fact, make a single lump-sum payment when you open the policy.
- Premiums are capitalized. They earn interest, which increases the initial principal.
- At any time, you can withdraw some or all of your savings or close the account.
- At the end of your life insurance policy (the date specified at the time of purchase), you will receive the funds you have saved, either as a lump sum or as an annuity. If you die before the policy expires, the insurer will pay the lump sum to the beneficiary you have designated.
What is life insurance for?
Life insurance serves several financial planning purposes. In particular, it allows you to:
- to diversify their portfolio with a savings product;
- to build up long-term savings that can be used for various projects;
- to plan for retirement and have additional income at that time;
- to pass on their estate to the person or persons of their choice (outside of intestate succession).
How are beneficiaries designated in a probate proceeding?
The funds accumulated in a life insurance policy are not part of the estate. They are paid to the beneficiaries designated by the policyholder.
What are the current rules regarding the taxation of life insurance?
Life insurance currently benefits from a favorable tax framework.
Taxation at the Time of Withdrawal
Earnings generated by the life insurance policy are not taxable during the term of the policy. They are taxable only upon partial or total withdrawal of the principal. Interest earned on contributions made on or after September 27, 2017, is then subject to the single flat-rate withholding tax (PFU), the rate of which varies depending on the duration of the investment and the amount of the contributions.
PFU Rate Based on Contract Term and Payment Amount
The policyholder is also entitled to a tax deduction (reduction of the taxable base) of €4,600 per year (or €9,200 for a married couple or civil-partnership couple filing a joint tax return) on gains upon withdrawal, provided the policy has been in force for more than 8 years.
Only the excess amount is subject to the progressive income tax scale or the flat tax rate, depending on the option chosen.
Taxation at the Time of Inheritance
The beneficiary of a life insurance policy does not have to pay any estate taxes if the death benefit received does not exceed €152,500 (per beneficiary), regardless of the beneficiary’s relationship to the deceased policyholder.
If the principal exceeds €152,500, the tax treatment depends on the subscriber’s age:
- Before the age of 70, capital is taxed at 20% on amounts up to €700,000 and at 31.25% on amounts above that;
- After the age of 70, a one-time deduction of €30,500 is applied, regardless of the number of beneficiaries. Beyond that amount, the funds are added back to the estate’s assets. Only capitalized interest is exempt.
What legislative changes are planned for 2026?
No legislative changes regarding the taxation of life insurance are planned for 2026, despite recurring debates and proposed legislation.
Taxation remains unchanged
The Mattei amendment, which would have aligned estate tax rates with the progressive schedule for gift and estate taxes, was removed from the 2026 budget bill.
Tax treatment—whether at the time of a withdrawal or upon inheritance—remains unchanged to date.
Temporary deduction
However, Amendment No. I-3626 to the budget bill was adopted on November 3, 2025. It establishes a temporary tax deduction.
In fact, holders of a life insurance policy who paid premiums before turning 70 and before October 1, 2025, may transfer, by way of a gift (i.e., during their lifetime), up to €152,500 per beneficiary (spouse, child, or grandchild), completely tax-free. This transfer must be completed sometime in 2026, before December 31, 2026.
According to the National Assembly, this temporary measure is intended to encourage the transfer of assets and make savings available to younger generations.
Example
Over the course of 15 years, Joséphine has contributed 120,000 € to her life insurance policy. She wants to help her grandson Arthur, who is planning to buy an apartment.
Without the temporary deduction:
She can withdraw €80,000 from her policy. The earnings generated by this amount are taxed at 24.7% (a 7.5% flat-rate withholding tax that does not discharge the tax liability + 17.2% in social security contributions), after applying the €4,600 deduction.
With the 2026 tax deduction:
She can transfer €80,000 tax-free.
The Inclusion of Life Insurance Proceeds in the Estate
Premiums paid after the policyholder turns 70 are treated differently upon death. They are subject to the inheritance tax schedule based on the relationship between the policyholder and the beneficiary, after applying a one-time tax deduction of €30,500; any amount exceeding this deduction is added back to the estate’s assets. Interest, on the other hand, remains exempt from estate taxes.
Progressive inheritance tax schedule for heirs in the direct line of descent (father, mother, child, and grandchild)
Other tax rates apply depending on the family relationship (siblings, relatives up to the fourth degree, other heirs, etc.). These rates can be found on the website economie.gouv.fr