Optimize the transfer of your life insurance policy

Life insurance is often used to pass on assets in a tax-efficient manner. It allows you to bequeath up to €152,500 without the beneficiaries having to pay inheritance tax.

However, to optimize the transfer of a life insurance policy, it is essential to:

• Carefully complete the beneficiary clause, preferably by specifying the names and contact information of the selected individuals;
• Consider how the capital will be distributed if there are multiple beneficiaries (whether in equal shares or not);
• Regularly update the information to facilitate the insurer's payment of benefits upon death.

The Basics of Life Insurance

Life insurance allows you to build up savings that earn interest through regular or flexible payments. 

• During the term of the contract, you can withdraw your savings by making a partial or full surrender or by requesting an advance.
• At the end of the contract, the insurer returns the funds to the policyholder in the form of an annuity or a lump sum. 
• If the policyholder dies before the policy matures, the death benefit is paid to the designated beneficiary.

A Tool for Passing on Cultural Heritage

Life insurance is one of the preferred tools for transferring wealth because of its unique structure.

• It allows you to bequeath a sum of money to the person or persons of your choice, whether or not they are part of your family.
• Capitalized amounts are not included in the deceased’s estate. As a result, life insurance beneficiaries do not have to pay inheritance tax on the funds they receive.

Strategies for Optimizing the Transfer of Family Wealth Through Life Insurance

Designating Life Insurance Beneficiaries

It is important to fill out the beneficiary clause of the life insurance policy correctly so that the transfer of benefits can take place under the best possible conditions.

You can designate one or more beneficiaries (family members, friends, an organization, or a foundation…): 

• by using a standard clause in the insurance contract (“my spouse,” “my children,” “my heirs,” etc.) without specifying their identities;
• by including a clause that names the beneficiaries, that is, by specifying the full identity (legal and birth names, first names, mailing address, date and place of birth) of the beneficiary or beneficiaries;
• by referring to your will and specifying the beneficiaries in it.

Please note: 

• that it is strongly recommended to designate alternate beneficiaries (in the event of Mr. Dupont’s death, his entire share would go to Mr. Martin…);
• that you can distribute the capital freely among the beneficiaries;
• If no beneficiary has been designated at the time of the insured’s death, the accumulated funds become part of the estate.

Update Your Contract

To ensure the smooth transfer of your estate, we recommend that you regularly update your policy by updating the beneficiaries' contact information and/or changing the allocation of funds.

How does the transfer of a life insurance policy work after the policyholder's death?

Upon the death of the life insurance policyholder, the accumulated savings are paid to the persons designated by the insurer within one month, following a process that varies depending on the beneficiary clause.

Standard Clause

Beneficiaries must submit a notarized document to the insurer so that the insurer can distribute the funds based on the notary’s verified information (spouse’s identity, children’s identities and number, etc.).

Nominative clause

Since the beneficiaries are specifically named, the insurer does not need a notarized document to distribute the proceeds.

Payment of the principal

The insurer has one month to pay out the proceeds once the necessary documents have been received (if required). If this deadline is exceeded, the unpaid funds accrue additional interest at a rate of 13.68% for two months and 20.52% thereafter.

Life Insurance Taxation: What Inheritance Tax Rules Apply?

The beneficiary or beneficiaries of a life insurance policy are not required to pay inheritance tax, since the accumulated funds are not included in the estate’s assets, as long as the amount received does not exceed €152,500 (per beneficiary).

If the death benefit exceeds this threshold, the applicable tax rate varies depending on the insured person’s age at the time of death. 

• If contributions were made to the policy before the policyholder turned 70, the excess amount (after deducting €152,500) is taxed at 20% up to €700,000 and at 31.25% above that amount.
• Premiums paid after the insured person turns 70 are subject to a €30,500 exemption; the remainder is subject to estate tax. Capitalized interest is not taxed.

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Sources

https://www.service-public.gouv.fr/particuliers/vosdroits/F15274

https://www.service-public.gouv.fr/particuliers/vosdroits/F15268

https://www.impots.gouv.fr/international-particulier/questions/comment-sont-imposees-les-assurances-vie-en-cas-de-deces-du