Misconceptions about the French “contrat d’assurance-vie”

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The contrat d’assurance vie is not an investment, it’s a wrapper that allows the purchase of investments benefiting from privileged tax provisions. Furthermore, contrary to popular belief, it is not a life insurance, but quite the opposite. The life insurance exists only as long as the subscriber is alive, it is then dissolved for the beneficiary upon the death of the policyholder. The contrat d’assurance vie is a contract between three people: a subscriber who uses it to make investments and take advantage of tax benefits on capital gains, an insurer that is the custodian of the money put on the contract, and a beneficiary who will receive the contract value on the subscriber’s death.

What to remember: The contrat d’assurance vie is widely acclaimed by the French and asset managers/IFAs because of its privileged taxation on capital gains, the opportunities it provides in terms of inheritance planning, and its ease of use because it is easier to create a portfolio of funds than a portfolio of shares.

Six misconceptions about the contrat d’assurance-vie

  • My money is blocked for 8 years

Money deposited on contrat d’assurance-vie is never blocked. The only parameter that is related to a question of time is the tax payable on capital gains. A contrat d’assurance-vie reaches its tax maturity after 8 years, but before that date the money can be withdrawn at any time. In the first four years, the capital gains will be subject to income tax or at 35%, between 4 and 8 years old it will be subject to income tax or at a rate of 15.5%, and after 8 years subject to income tax or at a rate of 7.5% after deduction of €4,600 for a single person or €9,200 for a couple.

  • I have plenty of time to think about it

You may not need a contrat d’assurance-vie now, but what will it be in 8 or 10 years time if you sell your home, your business, or receive an inheritance? As previously announced, the fiscal maturity of the contract is after 8 years. Opening a contract immediately, even by placing the minimum amount required enables to begin the fiscal clock. The money remains available and allows if needed, in the future, to have a contract with a maximum benefit.

  • Some policies perform better

What makes the performance of a contrat d’assurance-vie is the selection of the funds that are put inside. A contrat d’assurance-vie allows you to choose between 1 or 2 euros secured funds, as well as from hundreds of funds exposed to markets, sometimes you can even choose REIT shares. Most high-end contracts offer more or less the same fund choices, only euro funds are specific to each insurer. Therefore the performance depends on the ability of the investor or its adviser.

  • All contracts are worth the same

You should not take the first contract that comes along, but study its characteristics. Most contracts offered by banks in their neighborhoods agencies are of poor quality. The iInvestor should ask himself a series of questions before signing. Does the contract meet my needs? What is the quality of the available funds? What is the historical performance of the fund in euros? What are the management options? What are the fees requested and for what service?

  • The beneficiary clause is ancillary

The contrat d’assurance-vie is also a great inheritance tax planning tool. Indeed, the subscriber chooses a person who will receive the capital from the contract, on the day of his death. This money is outside of the Estate, with an allowance of €152,500 per beneficiary, whether or not it is a relative of the applicant. The drafting of the clause designating the beneficiary must be given the greatest of attention, otherwise it will not benefit the right person, or you could even see the money end up in the State’s accounts.

  • The contrat d’assurance-vie in Luxembourg is for the rich

The contrat d’assurance-vie under Luxembourg law provides the same tax benefits as a contract of French law. However, it is characterised by its enhanced security, imposed by the laws of the Grand Duchy. These contracts are available to all, only management options change depending on the importance of the amount invested. These contracts are particularly suitable for expatriates, persons seeking more security and flexibility of operation.

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