Life insurance is a very popular savings product. But when the time comes to recover the funds invested, it can be difficult to choose between the total redemption of the contract or the transformation of the capital into a life annuity. In this article, we’ll take a look at the key features of each option to help you make the best choice.
The subscriber of a life insurance contract can choose, at the time of subscription or during the contract, to convert his capital into a life annuity. This transformation can be partial or total, and it is irrevocable. In concrete terms, this means that the insured cedes his capital to the insurer who pays him a life annuity in exchange. Once the capital has been converted into an annuity, the insured will receive a regular, monthly or quarterly income, until the end of his life. The life annuity is therefore a long-term savings product, which guarantees an additional income for life. The amount of this annuity depends on several factors, in particular the age of the insured at the time of conversion of the capital into an annuity, the amount of capital converted, the desired payment period, the technical interest rate guaranteed by the insurer, etc The higher the age of the insured, the higher the amount of the pension will be. The life annuity in life insurance benefits from advantageous taxation. The income received is subject to income tax, but part of this income is exempt from tax depending on the age of the insured at the time of the transformation of the capital into an annuity. The higher the age, the greater the exempt portion. This advantageous taxation makes it a very attractive savings product for preparing for retirement and guaranteeing additional income for life.
The total redemption recovers the capital built up on the life insurance contract. This option can be interesting for people who need a large sum of money at a given time, for example to finance a real estate project, a business, or to meet unforeseen expenses. However, tax aspects should be taken into account. Indeed, in the event of total surrender, the gains made on the life insurance policy are subject to income tax and social security contributions, while part of the income received from a life annuity may be tax exempt. depending on the age of the insured. It should be noted that the total redemption of a life insurance contract leads to the definitive closure of this contract. Therefore, if the insured wishes to continue saving on a life insurance contract, he will have to take out a new contract. For more information, here is an article to read on the Sicavonline blog.
The choice between the life annuity and the total redemption depends on the objectives of each saver. In summary: the redemption allows you to recover all of your capital built up on your life insurance contract, which can be interesting if you want to have a large sum of money at a given time. In return, this redemption may lead to the definitive closure of your contract, and you therefore lose the tax advantages. For its part, the annuity allows you to protect yourself against the risk of longevity, that is to say to live longer than expected and to risk running out of income. The life annuity is interesting to guarantee a regular income for life, while the total redemption can be preferable to recover a large sum of money at a given time.
In either case, it is advisable to think carefully before making a decision and to be accompanied by a wealth management advisor.