saving via life insurance offers many tax advantages and allows you to prepare various medium or long-term projects: build up a contribution in the context of a real estate purchase, save for the studies of children, prepare the transmission of your assets… or simply preparing for retirement. In this case, there are several options to take advantage of its savings.
When you retire, your income will drop. To reduce this shortfall, it is possible to use your life insurance and thus benefit from additional cash. Even if retirement pensions are increased by 4%, relying on additional resources may be an option to consider. For this, you have two possible solutions: life annuity Where capital outflow.
1- Life annuity
By opting for a life insurance annuity, you transfer ownership of your money to your insurer. In return, he agrees to pay you a fixed sum periodically (called arrears) until your death.
An interesting solution to provide you with additional income when you retire. To calculate the amount of your pension, the insurer will be based on the principal amount on the contract and your age during the transformation of capital into rent.
You can choose to receive this amount monthly, quarterly or half-yearly or even annually.
Life annuity: definition, taxation and calculation
A final decision
You should know that this decision is irrevocable and that you will have no means of recovering your capital otherwise. An important point to take into account in your decision.
As this money now belongs to the insurance company, if your death occurs before your capital is exhausted, your beneficiary(ies) will not receive anything. However, to protect your spouse, you can take out a reversal option: the insurer then undertakes to pay a percentage of the amount of the pension (often less high) to your spouse if you were to disappear.
However, if your dcs occurs after exhaustion of your capitalyour insurer is required to continue paying you this annuity until such time.
Retirement savings plan: what pension can you expect?
The taxation of life annuities
Part of your life annuity is subject to income tax and social security contributions of 17.2%, depending on your age at the time of retirement:
- 70% for less than 50 years,
- 50% for insurers who have between 50 and 59 years old,
- 40% for insurers who have between 60 and 69 years old,
- 30% from 70 years.
To ask for the amount of your pension and the terms of payment, do not hesitate to contact your insurer.
Costs of a life annuity
When the saver converts his capital into an annuity, the insurer who now holds it can charge 3 types of costs.
- Annuity arrears fees. These costs are incurred when each pension is paid its beneficiary. The amount of these fees is most often 3% of the gross amount of the pension paid.
- Conversion fees are withdrawn in one go before the start of annuity payments.
- Management fees. The rates differ from one insurer to another but are generally close to the fund’s management fees in euros.
Retirement : save by paying less tax. 12 contracts compared
Insurers can choose to charge one, two or all three types of fees.
2- The capital outflow
Still with a view to receiving additional income, the saver can also opt for capital outflow. Here, you have two choices: full redemption or the program output in capital.
In the event of total surrender, you will receive all of the sums at once and your life insurance contract will be terminated. You then lose the tax advantages of a contract of more than 8 years, starting with the annual tax allowance of 4600euros (or 9200euros for a couple) that you burn in one go. Thus, if you have saved 50,000 euros on life insurance, the value of which has now risen to 70,000 euros, you will pay income tax on part of the accumulated earnings.
Life insurance: why withdrawing over several years can change everything
Partial redemptions
The other choice therefore, the program output. In this case, the saver carries out partial redemptions (he only withdraws part of his money) on a regular basis. For program output, you benefit from the tax deduction each year: if you phase your withdrawals well, you can probably avoid any income tax. And when you die, if you have capital left, your beneficiaries will receive it.
The taxation of life insurance in the event of death
The disadvantage is that your insurer owes you nothing: in case depletion of capital, no more scheduled payments.
To calculate these program redemptions and simulate their impact on your capital, contact your insurer or use our calculator.
3- How to weigh the pros and cons?
Before making a decision, ask yourself the question: what is the purpose of your life insurance policy? If it’s for pass on a heritage your family or any other designated beneficiary, take an interest in capital outflow. On the other hand, if your goal is to ensure your old agethe life annuity is a good solution.
This will depend on several factors: the amount of your retirement pension and your needs for additional income, the amount saved on your contract, its age, your age at the time of retirement and the desire to transmit your remaining assets….
| Criteria | Total redemption of a contract of more than 8 years | Partial redemptions scheduled on a contract of more than 8 years | Viagre annuity on a contract of more than 8 years |
|---|---|---|---|
| Taxation | Tax allowance used at one time: income tax risk pay | Tax allowance of 4600euros or 9200euros each year for a couple subject to joint taxation: possible to avoid income tax | The annuity is subject income tax Hight of 30% 70% according to retirement age |
| Costs | No withdrawal fees in most life insurance policies | No withdrawal fees in most life insurance policies | Of the management fees and/or arrears fees payment are debited, often up to 3% |
| Succession | Full redemption means closing your life insurance contract: there will be no more inheritance | In the event of death before your capital is exhausted, the beneficiaries will be able to receive the remaining part | Your capital now belongs to the insurer: when your death occurs, if the capital is not drawn down, it is not returned to any beneficiary |
| Sustainable income supplement? | Nope. You recover your capital in one go | Yes, but… If the capital is exhausted before your death, no withdrawal will be possible and you will no longer benefit from additional income. | Yes. You benefit from fixed payments until your death (unless there is a specific option), regardless of whether your capital runs out or not |
To know. It is possible to mix an exit in annuity and in capital and thus benefit from the advantages of both solutions. This is case by case, ask your insurer for advice.
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