Life insurance is like a toolbox for your money. Imagine a savings solution that not only helps you save for the future but also offers protection for your loved ones. It’s both a way of putting money aside and making sure that money works for you and your family. Interesting, isn’t it? Whether you want to finance your children’s education, prepare for retirement or protect your loved ones, life insurance can be tailored to your needs and those of your family. This article explores the advantages of taking out life insurance.
The basics of life insurance
How does it work?
When you take out life insurance, you open a contract with an insurance company. You pay money (called a “premium”) on a regular basis or in a lump sum. This money can be invested in different ways, depending on the type of policy you choose. Depending on these investments, your capital may increase. And in the event of a serious blow, this capital will be paid to the person of your choice. In short, it’s a way of preparing for the future while protecting your loved ones.
Why take out life insurance?
Saving for the future
Life insurance is an excellent tool for those who want to save for the long term. Unlike a traditional savings account, it gives you the opportunity to invest your money in projects that may yield a higher return. What’s more, the sums invested are tax-efficient, which means more savings for you.
Protecting your family
One of the greatest advantages of life insurance is the peace of mind it gives you. By choosing the beneficiaries of your policy, you ensure that your family is financially protected, even in your absence. It’s a way of guaranteeing them financial support for the future.
Preparing for your retirement
Thinking about retirement means thinking about yourself. Life insurance allows you to build up a capital sum for your old age, providing you with additional income once you retire. It’s a guarantee that you’ll be able to maintain your standard of living and make the most of this new stage in your life.
The main types of contract
When it comes to life insurance, there are two main routes to take: guaranteed-fund policies and variable-fund policies. But which one is right for you?
Guaranteed fund contracts: Here, your money is mainly invested in safe products, such as government bonds. Every year, your savings earn a little more, with no risk of losing the initial capital. This is the perfect choice for those who prefer to sleep soundly, without worrying about the ups and downs of the market.
Variable fund contracts: For the more daring, these contracts allow you to invest in products linked to the financial markets, such as shares or funds. Of course, the potential gains are higher, but so is the risk. It’s a bit like sailing on the high seas: there may be waves, but that’s where the adventure lies and, potentially, the treasure.
Each type has its advantages, depending on what you’re looking to achieve. Do you want security? Opt for a guaranteed fund.
Choosing the right contract
The choice of life insurance policy is crucial. It must be in line with your financial objectives, risk tolerance and investment horizon. Here are a few tips to help you make the right choice:
- Define your objectives: precautionary savings, preparing for retirement, passing on assets… Your objective will determine the type of policy that is best suited to your needs.
- Assess your risk tolerance: Are you prepared to accept fluctuations in exchange for a higher potential return, or do you prefer absolute security?
- Compare offers: Fees, available options, quality of customer service and past performance are all criteria to be taken into account.
- Make a date: Even if you’re not yet ready to make a major investment, opening a policy now will allow you to start benefiting from tax advantages.
How life insurance protects your family
Beyond the financial aspect, life insurance is a powerful tool for protecting those you love. Here’s why:
- Financial security: In the event of your death, life insurance provides financial security for your beneficiaries. They receive the capital or annuity that you have planned, which can enable them to maintain their standard of living, pay off a mortgage or finance their studies.
- Freedom to designate beneficiaries: You are free to choose who will receive the capital in the event of your death, giving you great flexibility in organising your estate.
- Tax advantages on transfer: Capital transferred via life insurance benefits from a favourable tax regime, making it an ideal tool for optimising your estate.
Advantages of opening a life insurance policy
Not only is life insurance a versatile savings vehicle, it also offers significant tax advantages and great flexibility in managing your investments.
Tax savings: less tax on your savings
One of the greatest advantages of life insurance is its favourable tax treatment. Depending on the term of your policy, you can benefit from significant tax allowances and lower taxation on the interest and capital gains generated by your savings. Here’s how it works:
- For policies over 8 years old: You benefit from an annual allowance on gains (interest and capital gains) when you make withdrawals. This allowance considerably reduces, or even cancels out, the tax due on the sums withdrawn, maximising your long-term savings.
- Social security contributions: Although subject to social security contributions, life insurance gains often benefit from more favourable tax treatment than other investment products.
These tax advantages make life insurance the ideal tool for growing your assets efficiently, while optimising your tax burden.
More control over your money
Flexible withdrawals
Contrary to popular belief, the money invested in a life insurance policy is not frozen. You can make partial withdrawals as required without closing your policy. This flexibility means you can respond to unforeseen circumstances or finance personal projects while continuing to benefit from the growth potential of your savings.
Choice of investment
With life insurance, you have control over how your money is invested. Whether you’re a cautious investor looking for security, or you want to diversify your investments by taking on more risk to aim for a higher return, life insurance offers a wide range of options to suit every profile:
- Funds in euros: For those who prefer security, funds in euros guarantee the capital invested while offering an annual return.
- Units of account: For those who are prepared to take more risk, unit-linked products allow you to invest in financial markets with the potential for higher returns.
FAQ
What is the difference between a single-support contract and a multi-support contract?
A single-support contract invests solely in a guaranteed-capital euro fund, while a multi-support contract allows you to diversify your investments between several vehicles, including unit-linked products linked to the financial markets, with no capital guarantee.
Can the beneficiaries of a life insurance policy be changed?
Yes, it is generally possible to change the beneficiaries of a life insurance policy at any time, subject to the formalities specified by your insurer.
Is life insurance locked in for 8 years?
No, the money invested in life insurance is not frozen. You can make withdrawals at any time, but the tax benefits are optimised after 8 years.
Conclusion: Why is taking out life insurance a smart choice?
Opting for life insurance is a wise decision for a number of reasons. This flexible savings vehicle not only allows you to make significant tax savings, but also to retain total control over your capital, with the possibility of adapting your investments to your personal needs and objectives. Whether you’re looking to protect your family, prepare for retirement, or simply grow your savings in a tax-efficient way, life insurance offers a solution to suit every life plan. In short, life insurance is a strategic choice for anyone wishing to manage their assets in an efficient and personalised way.
