Are you interested in taking out several life insurance policies?
Legally, nothing is stopping you, and it may be beneficial for certain financial or family situations. We explain to you precisely what a life insurance policy is, how to choose it and how to use it.
What is life insurance?
In short, life insurance policies are investment products with fixed maturities, which at the same time offer cover in the event of death.
They allow you to build up savings, grow your capital and protect your loves ones. As a bonus, they save on taxes.
However, the term “life insurance” covers a series of different insurance policies. Depending on the conditions offered, they may be known as pension savings, retirement savings or long-term savings.
Why combine several life insurance policies?
In Luxembourg, the two main categories of life insurance policies are retirement insurance and death insurance. They are worth combining owing to their purposes and tax benefits.
For double protection
Combining them is immediately justified by the two products’ different functions:
- Death insurance protects your loved ones
It secures your debts, guarantees the payment of a lump sum to your loved ones and protects them should the worst happen.
- Retirement insurance insures your retirement
It is a long-term investment, used to anticipate the loss of revenue related to retirement.
For tax optimisation
Premiums are not only deductible from your taxable revenue (like other insurance policies), the release of capital itself also benefits from favourable tax treatment. Classic savings are subject to withholding tax of 20% at source, life insurance policies are not.
- Death insurance (article 111 of the Income Tax Law)
Premiums: you can deduct up to €672 a year per member of your household.
Capital release: net of tax on maturity.
- Retirement insurance (article 111bis of the Income Tax Law)
Premiums: you can deduct up to €3,200 a year per taxpayer.
Capital release: taxed at half the global rate (it is therefore advised to set the maturity after the first full year of retirement)
If you have a partner, it will therefore be in the best interests of both of you to take out a death insurance policy AND a retirement insurance policy.
Life insurance is an interesting estate planning tool on account of its flexibility concerning the designation of beneficiaries.
The capital passed on is not part of the estate. It is therefore not taken into account in the inventory of assets of the deceased, nor in the distribution between the heirs/heiresses
The advantage of combining allows you to organise the distribution of your wealth among the beneficiaries as you wish. At any moment, you are free to share your savings or pass on your wealth to people who are not among your legal heirs/hieresses. This “modulation” in estate planning does however have its limits, as a life insurance policy does not allow you to disinherit someon