There are many clichés surrounding life insurance, but one of them is particularly persistent: the lock-in for 8 years. However, nothing could be further from the truth. Withdrawals and payments are free for the entire duration of the contract.
Have you thought about taking a date? This question is a classic when meeting at a bank branch. A small educational exercise generally follows: the customer service representative takes a blank sheet of paper and draws the 8-year limit, from which tax is the most advantageous for withdrawing the savings deposited on life insurance. Hence the interest in taking a date. This is why the idea of blocking life insurance for 8 years is so widespread.
8 years, only a tax cap
But is the money really tied up in life insurance before reaching that famous 8th birthday? No! There is certainly a chance after 8 years of detention but it is only a tax cap. Nothing prevents a subscriber from closing his contract or making a withdrawal before!
The age of the contract, on the other hand, does indeed affect the level of taxation. Capital gains made thanks to your life insurance are subject to income tax. However, the tax is only deducted when you make a withdrawal (or redemption in life insurance jargon). Taxation is more or less advantageous if you make this withdrawal before or after this famous milestone of 8 years.
Taxation of life insurance: the rules in the event of surrender, before/after 8 years
Reduction, reward for 8 years of detention
Since the entry into force of the flat tax, or single lump sum levy (PFU), for any new payment on a life insurance contract, the gains are taxed 12.8% maximum. This income tax rate applies to any surrender before the 8th anniversary of the contract.
After 8 years of holding, the tax is more lenient. In the event of withdrawal, a reduction of 4600 euros (9200 euros for a couple) applies every year the share of gains in this buyout! In other words, if you have earned several thousand euros thanks to your life insurance for more than 8 years, you can spread out your withdrawals over several years and avoid any income tax. If your earnings exceed the reduction threshold, a compulsory flat-rate withholding of 7.5% applies. Much more marginally, for people with very large life insurance assets, part of the gains will be taxed at 12.8%.
What about old contracts?
Any payment made on life insurance before September 27, 2017 is not affected by the flat tax. These old contracts have retained their tax regime, with gradual taxation: flat rate of 35% before 4 years of detention, 15% between 4 and 8 years oldallowances and flat-rate deduction 7.5% pass the 8th birthday.
Let us summarize: thanks to the reductions, the 8-year mark actually offers a taxation more favorable to life insurance income. But a withdrawal made before this famous milestone does not generate a prohibitive imposition, especially since the entry into force of the flat tax.
As for social security contributions, currently 17.2%, the length of detention changes nothing since they are deducted each year on the interest of the fund in eurosand at the time of redemption for the overall capital gain (with possible restitution in the event of overpayment).
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No more tax than other investments
At one time, the taxation of the first 8 years of holding could seem disadvantageous compared to other savings products. Here again, the flat tax has completely changed the situation! For investments taken out in 2018, whether it is a bank account, a home savings product, a securities account or life insurance, the capital income is submitted to the PFU.
The savings tax reform has leveled the balance of power since only the Livret A, the LEP, the LDDS or the Livret Jeune are completely exempt from income tax.
Deadlines and minimum amounts for withdrawals
A downside, however, which also fuels this idea of blockage: savers cannot draw from their life insurance as they wish, in 2 or 3 clicks on their smartphone, like on a Livret A. On the one hand, insurers claim the most often a minimum amount for partial withdrawals: 100, 150, 500, 1000 or even 5000 euros depending on the type of contract. And funds are not available at the minute: from one distributor or client to another, deadlines extend 2 days 2 monthsthe legal maximum!
Certain contract managers certainly promise a limited deadline 48 or 72 hours to withdraw part of the sums presented on the contract if the request is made online. But the deadlines extend to 1 or 2 weeks as soon as the request is sent by mail. Everything depends on the contract, the amount withdrawn, and the life insurance distributor (bank, online broker, etc.).
Withdrawal from a life insurance contract: how soon will you receive your money?
A more or less complex product depending on the contracts
Certainly less flexible than a booklet, life insurance is not necessarily restrictive. While there are many old contracts with tricky clauses (deducted fees, mandatory payments, etc.), the sector has significantly modernized, driven by web players. THE payment fees disappear for example on contracts sold online. And even more traditional distributors (banks and insurance networks) offer to carry out simple operations (payments, arbitrations, etc.) from an online customer area, without going through the agency!
What you must remember
Is the money blocked? No! It is possible to withdraw funds regardless of the subscription date.
- Before 8 years, is taxation so unfavorable? No! Livret A or LDDS aside, with the entry into force of the flat tax, the gains from a payment made in 2018, 2019 or 2020 on life insurance will not be no more taxed than on other investments banking.
- Do you have to keep your contract for 8 years? No, but the 8-year mark allows you to benefit from a tax carrot: the partial tax exemption on life insurance earnings thanks to allowances, as well as a lower tax rate for most taxpayers.
- Is life insurance as flexible as a Livret A? No. Despite the freedom of withdrawals, the procedure is actually more restrictive, with lead times ranging from a few days to a few weeks According to the case.
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