7 Principle of contribution in life insurance

Picture: Illustration principle life insurance

Life insurance is a savings product that can meet all objectives provided that certain rules are respected.

Life insurance is a bit like a role-playing game in which, in addition to the insurer, three actors intervene: the subscriber, the insured and the beneficiary.

This financial investment is popular with savers, who see it as an opportunity to build up savings, prepare for their retirement and organize their estate under the best possible conditions.

A real tool to do everything! Everyone can find something for themselves, especially since the operation of a life insurance contract is relatively simple, at least in principle. A certain number of legal rules must nevertheless be respected, otherwise the contract risks being cancelled.

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1. The subscriber

It is he who designates the beneficiaries of the contract in the event of death.

Main player in a life insurance contract, the subscriber is the one who signs this contract, pays contributions (or premiums) to the insurance company and designates the beneficiaries in the event of death who, when the time comes, will receive the capital. constituted.

Given the importance, sometimes considerable, of the sums involved, the subscriber must have the legal capacity to perform such an act. Adults are supposed to have this capacity, but those whose lucidity is insufficient must be assisted or represented.

This is particularly the case for people under guardianship or curatorship, and, of course, non-emancipated minor children. Guardians or trustees (appointed by the family council) must then be present when the contract is signed.

These precautions are not useless, because if the legal forms are not respected, at the time of death, the forced heirs may have an interest in requesting the cancellation of the contract, especially if strangers to the family are among the beneficiaries

And in this case, the contract can be reintegrated into the estate assets.

Most of the time, the subscriber is a saver who wishes to build up reserves of money for his old age or bequeath capital to relatives under good tax conditions.

But a contract can also be concluded between an insurer and a legal person, for example an association or an employer. The saver is then not a subscriber, but only a member of the contract, therefore not authorized to modify the terms.

Many financial groups market life insurance contracts (BPCE, Covéa, Macif, MACSF, Swiss Life, etc.), but the French market is nevertheless concentrated in ten establishments, which hold 73% of total outstandings (1,788 billion euros). euros under management at the end of 2019).

CNP and Crédit Agricole alone account for nearly 30% market share.

2. The insured

In the majority of cases, he is also the subscriber of the life insurance contract. Like any contract intended to cover a risk, life insurance supposes clearly identifying the person, namely the insured, on whom this risk weighs. It is up to the subscriber to choose it.

In almost all cases, life insurance is an investment, so the subscriber and the insured are one and the same person. Therefore, the question of choice does not even arise.

But it is also possible that a person wishes to guarantee another person against the death of a third person, such as this example of the grandparent, subscriber of a contract, who designates his grandson as beneficiary if his father dies (this the latter then being the insured).

Certain precautions must then be taken in the choice of the insured since it is his death that will trigger the guarantee.

Indeed, the temptation may exist for the beneficiary to make the insured person disappear in order to get the loot more quickly... Hence the prohibition on designating as insured persons persons under guardianship or placed in a psychiatric establishment.

In the same spirit, and always if the insured is not the subscriber, he must be informed of the risk which weighs on his head and give his consent in writing.

Attention, the identity of the insured is not indifferent to the level of inheritance taxation, since this depends on the age of the insured and the date of subscription of the contract.

3. The beneficiary

He will receive the capital on the death of the insured, with very advantageous taxation. The beneficiary is the person who receives the sums that have been paid into the contract. As long as the subscriber is alive, he is the beneficiary.

On his death, it is the natural or legal persons (there may be one or more) that he has designated. The choice of beneficiary(ies) belongs to the subscriber alone and no one else, even if it is a creditor wishing to recover his bet.

This freedom of choice is essential, because it makes it possible to transmit part of one's assets to third parties without any constraints.

Oral. In other words, the sums paid are not subject to the regulations or inheritance tax, regardless of the identity of the beneficiaries (family, friends, associations, etc.).

That said, not just anyone can be designated as a beneficiary: they must not be subject to an "incapacity to enjoyment", a measure aimed in particular at members of the medical professions (doctors, nurses, etc.) who have treated the insured during the illness from which he will die.

4. Principle

Money invested and accrued interest can be recovered at any time. It is its ease of use that makes life insurance the most attractive investment in the eyes of the French. Its principle is simple.

The insurer manages the funds invested by the insured and undertakes to pay him, at the appropriate time, a capital or an annuity. In the event of death, the sums accumulated are automatically transferred to the designated beneficiaries.

During the life of the subscriber, he can recover his funds at any time. In addition to these three basic assets, there is a wide range of management methods, suitable for all types of savers, from the most cautious to the most daring, and taxation on gains, which, despite the measures in force since January 2018, remains very attractive.

Unlike many other financial products, life insurance is also characterized by extreme flexibility. Thus, almost all contracts are “free payment”, that is to say that we feed them when we want and at the rate we want.

The lazy can even opt for scheduled periodic payments, even if it means interrupting them when they see fit. Finally, you can take out a life insurance contract – and even several – at any age, including for your child, who will regain control of it when he comes of age.

5. Duration

Barring rare exceptions, contracts are automatically renewed each year. The only downside to life insurance, it is sometimes said, is the risk of being stuck in it for a long time.

Admittedly, it is an investment which it is better not to touch for 8 years to optimize the tax advantage associated with it.

It is also true that the entry fees of 2 to 4% levied by most insurers (only 100% Internet contracts are exempt) assume a fairly long holding period before being amortized.

That said, the funds are never blocked, just as at the end of the 8 years nothing obliges the subscriber to terminate his contract. In fact, life insurance policies almost never have a fixed term: they are tacitly renewable, unless the subscriber decides otherwise.

Good to know: in the rare cases where a contract is limited in time, the insured has every interest in providing for the possibility of extending it, otherwise he will have to recover his money, even if he does not need it.

And if he wants to reinvest it, he will have to sign a new contract, and it will be the double penalty: pay additional fees and start from scratch for the tax advantage.

6. Minor child

Nothing prevents his parents, if they agree, from opening a contract in his name. Benefiting a minor child through life insurance is very simple.

Either he designates him as the beneficiary of their contract (but he will only receive the capital upon their death), or he opens a contract for him in his name. For this, it is sufficient that both parents (or one of them if he alone has parental authority) sign the contract on behalf of the child.

They will then fund this contract freely, knowing that if necessary, they will be able to withdraw the accumulated earnings (not the capital) until the child is 16 years old. The latter will become the full holder of the contract at the age of majority.

Note: a minor cannot designate the beneficiaries himself in the event of death, the clause stipulates that it is obligatorily his “legal heirs”. So his parents and any brothers or sisters.

7. Death insurance: nothing to do with life insurance!

Marketed by the same groups, life insurance and death insurance do not have much in common.

While the first is a financial investment with tax advantages, the second is a provident product used to protect the family from accidental death:

against the payment of a contribution, the insurer undertakes, if the death intervenes during the period covered (10 years, 20 years, etc.), to pay the beneficiaries the agreed sum. What if the insured is still alive at the end of the period? So the beneficiaries get nothing.

Notice to those concerned: the contributions, modest before the age of 45, end up becoming expensive when you get older. For 100,000 euros of guaranteed capital up to age 70, count 15 euros per month at 40, but around 70 euros per month at 55.

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