Why take out life insurance in Luxembourg?

What is life insurance?

In the Grand Duchy, life insurance should not be seen as a rigid financial product, but as a highly flexible legal and tax framework firmly rooted in Luxembourg. This versatile solution actually covers two distinct and complementary uses: an effective savings and investment tool during your lifetime, and a bespoke financial protection and wealth transfer instrument in the event of death.

Death benefit:

This is insurance that covers a capital sum to be paid out in the event of death, either to the bank in the case of a property purchase with a loan, or to your relatives. This policy can also cover the risk of disability and accident. There are no savings in this type of insurance, it is an insurance that only pays out its benefit in the event of a claim (death, invalidity or accident). It can be temporary (for the duration of the mortgage, for example) or permanent.

Endowment savings and investments: 

Life insurance solutions allow you to choose exactly how your capital is invested. The policy is built around different investment options, ranging from secure euro funds to unit-linked funds (equities, bonds, thematic funds). The choice of these investment options depends directly on your personal risk profile (cautious, balanced or dynamic) and your wealth objectives. As the policyholder, you remain fully in control of your decisions by adjusting your allocations over time.

Which life insurance should I choose? At what age should I invest?

Savings and provident insurance policies are linked to lifestyle and age.

At the age of 30, a life insurance savings product can be used to finance a trip around the world or to start preparing for retirement.

At 50, with children, a foresight insurance policy allows you to protect your loved ones should you die. Your spouse will receive a lump sum in the event of your death, enabling him or her to cope financially.

Finally, at the age of 70, life insurance is also a tool allowing you to pass on part of your capital to the beneficiary of your choice.

How much does it pay out?

This is a perfectly fair question, but the return on a life insurance policy is never automatic or linear. Overall performance depends on several key factors: developments in the financial markets, the management fees applied and the allocation of your assets. Apart from euro funds, which offer a capital guarantee, there is no single performance level or guaranteed return. Taking a measured degree of risk through unit-linked funds has historically made it possible to target more attractive long-term returns.

There are different levels of risk. From very defensive to very risky. Thus, the more cautious will choose to invest their capital in a guaranteed investment (rate currently at 0% due to the economic context) with the possibility of a bonus at the end of the year (profit sharing).

Clients with a more "aggressive" risk profile can turn to funds in commodities, robotics or biotechnology, for example, which can generate higher gains but with greater risk of loss.

Finally, risk is not necessarily the only criterion.Indeed, many investors are now turning to responsible funds that take into account environmental, social and governance aspects in their choice of companies to invest in.

What are the tax advantages of life insurance in Luxembourg?

There are two kinds of advantages.

Firstly, with the exception of retirement savings, your savings are not taxed on withdrawal. Both the capital payable at the end of the policy and your death benefit are tax-free.

Secondly, you are eligible for a tax reduction from the moment you save. In fact, each taxpayer can deduct:

• Up to €672/year from their taxable amount relating to the premiums paid for a life insurance contract (see article 111 of the Luxembourg income tax code (L.I.R.)),
• And up to €4500/year for the premiums paid on a pension savings contract (see article 111 bis of the L.I.R.).

Can I cancel a life insurance policy? What happens if I terminate it early?

With a savings/investment solution, your money remains available. You can withdraw all or part of it whenever you want.

Who receives the money?

Again, in the case of both savings and pensions, it is you who designates the beneficiary or beneficiaries.

Why is life insurance particularly interesting in Luxembourg?

The Grand Duchy has established itself as a leading international financial centre thanks to a capital protection framework that is unique in the world, commonly known as the Security Triangle. This protection mechanism legally links three parties: the insurance company, the Commissariat aux Assurances (CAA) and an approved depositary bank. Clients’ assets must be separated from the insurer’s own funds and deposited in a separate bank account. In the event of the insurance company’s failure, this system grants policyholders first-ranking creditor status (Super Privilege), allowing them to recover their savings as a priority.

Is it possible to have several life insurance policies?

Yes. You can of course combine a foresight product with a savings product.

Generally, husband and wife are insured under a life insurance policy designed to protect a property purchase. But not necessarily to the same extent.

As for savings, there are no limits there either. Husbands and wives can take out independent policies, which simplifies the transfer of assets but also makes things easier in the event of separation.