Why take out life insurance in Luxembourg?
Financing a project, protecting your loved ones, preparing for retirement or passing on your assets are all good reasons to take out a life insurance policy. Because in addition to dealing with the challenges life throws at us, you also benefit from tax advantages. Here is an overview.
What is life insurance?
The term "life insurance" is commonly used to refer to two different investment products.
- 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: A savings solution to finance a project, supplement your retirement or bequeath your assets. The sum obtained at the term of the policy is the accrued amount of your savings.
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?
The return on savings in the event of death is also left to your discretion, depending on your choices.
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 €3200/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?
As a savings product, life insurance taken out in Luxembourg allows you to better plan the transfer of your assets to the beneficiaries of your choice. As long as you’re still living in Luxembourg at the time of your death, as the inheritance law of the country of residence will apply.
Secondly, the Grand Duchy of Luxembourg has a great deal of investment expertise, with a very wide choice of funds available.
Finally, the level of capital protection is unrivalled in Luxembourg because the assets linked to life insurance contracts are deposited with a bank approved in advance by the Luxembourg Insurance Commission. If the insurer defaults, the supervisory authority can freeze the accounts to protect the rights of policyholders.
This is the famous Luxembourg security triangle.
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.
What are the different life insurance products at AXA?
Protect your children, finance your projects, prepare your pension or insure yourself in the event of death, find all the AXA savings and pension products.
Contact one of our advisors to find the solution that suits your lifestyle.
