A Capital reader wonders whether it is wise to open or pay into a life insurance policy after the age of 75. This investment becomes less interesting for transmission after the age of 70. But it should not be neglected for all that.
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– What is the age limit for opening and paying into a life insurance policy?
Hanita, a reader of Capital, asks us the following question: “Hello, is it possible to open or contribute to a life insurance policy after the age of 75? And if it is possible, can the money invested benefit the designated persons, or does it necessarily fall back into the estate?
Hello Hanita, thank you for your question, which allows us to return to the inheritance benefits of life insurance, and the interest of this savings product after the age of 70. To answer your very first question straight away: yes, it is entirely possible to open a life insurance policy after the age of 75. In reality, everyone has the right to open one, regardless of their age, and parents can even do so on behalf of their child from birth.
The question remains whether it is wise to open and contribute to this product – generally considered a “long-term” investment – once you have passed the age of 75. If your savings plan is to pass on your capital, as you seem to suggest, then yes, life insurance remains a suitable investment. The money invested will indeed benefit the people you have designated in the beneficiary clause of the contract, and will not enter into your estate.
A smaller inheritance advantage after age 70, but still interesting
Two warnings, however. First, you should keep in mind that after the age of 70, payments made on life insurance are less advantageous for limiting inheritance tax. For payments made before the age of 70, all beneficiaries benefit from a inheritance tax reduction of 152,500 euros. To put it another way, for any amount transferred between 1 and 152,500 euros, each of the designated beneficiaries is exempt from duties.
On the other hand, after the age of 70, this reduction is limited to 30,500 euros, and above all, it applies to all beneficiaries, not to each of them! At 75, you will therefore only be able to bequeath a maximum of 30,500 euros to all the designated persons. Beyond that, they will have to pay inheritance tax, unless it is your spouse, who will remain completely exempt. Similarly, this rule only applies to payments made on your life insurance, and not to the interest or capital gains it will have generated.
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Let’s take an example to see this more clearly. “Let’s imagine that you have paid 100,000 euros into your life insurance after the age of 75. With the allowance of 30,500 euros, 69,500 euros will return to the estate, explains Eric Fraga, Asset Manager at Equance. The question remains who the beneficiary or beneficiaries are: if it is the spouse, he or she will also be exempt from inheritance tax on the 69,500 euros. Similarly, children in the direct line benefit from an allowance of 100,000 euros. On the other hand, if they are people outside your family, or your grandchildren – if they do not inherit in place of their parents – they will be taxed on this latter sum according to the general scale of inheritance tax. But let’s imagine that your life insurance has allowed you to generate 50,000 euros. In this case, the value of your contract at your death is 150,000 euros. This capital gain will also be exempt, because only the part corresponding to the payments after deduction, i.e. 69,500 euros, will be subject to inheritance tax, even if the designated beneficiary is not the spouse.”
Beware of the risk that the estate will be taken to court by your heirs
As you can see Hanita, the inheritance interest of life insurance after 75 will depend mainly on your family relationship and the number of people you designate. In summary, if you only designate one person, anda fortiori This is your spouse or a direct relative, life insurance remains very interesting, because they will benefit from the life insurance allowance, then from their personal allowance as a member of your family on the rest of your estate. Life insurance also remains the preferred envelope for transferring outside of the estate to a loved one outside the family circle (friend, partner, association, etc.). However, in this case, be careful to respect some good practices concerning the frequency and amount of payments, in order to avoid any risk that your estate could be attacked by your legal heirs, if they consider themselves wronged, and reclassified as a disguised donation.
Succession: “Is life insurance a good idea to pass on to your grandchildren after the age of 70?”
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