Life insurance is very popular because of its mode of operation as well as its tax advantages, and allows two types of exit at the time of retirement: annuity or capital exit. Here is a brief overview of the advantages and disadvantages of each of these two solutions.
Annuity or capital for life insurance?-iStock-Inside Creative House
A capital outflow involves the partial or complete redemption of the life insurance contract by its subscriber. The latter then receives the invested amounts. During a lump sum redemption, the subscriber receives the total amount for his contract at once. Scheduled partial redemptions allow the contract holder to gradually recover the amounts received. More flexibly, the programmed capital withdrawal allows savers to supplement their income or better manage their savings. In the event of the death of the holder of the life insurance, the remaining amounts of the contract will be paid directly to the beneficiaries of the latter.
What taxation to leave the capital?
In the event of full or partial redemption, only the capital gain is taxable. Subscribers who choose this type of exit must then choose between taxation in the range of their income tax or taxation with a fixed charge (PFL).
The exit annuity involves full transfer of ownership of the money collected to the insurance company. The latter then undertakes to pay the insured a fixed amount over a specified period (monthly, quarterly, half-yearly or annual benefits) until his death. The annuity is calculated on the basis of the amounts contained in the contract and the age of the subscriber at the time of the conversion of the capital into an annuity. The annuity gives the insured the opportunity to benefit from a stable additional income at the time of retirement.
What taxation for the annuity?
Part of the annuity is subject to income tax and social contributions. It is determined in relation to the age of the insured: 70% for insured persons under 50 years of age, 50% for subscribers aged 50 to 59, 40% for those between 60 and 69 years of age, 30% from 70 years of age. The announcement of an annuity is irrevocable. When the contract is converted, the savings become the exclusive property of the insurance company. In addition, given the fact that the annuity is paid until death, it is possible that the total amount received at the time of death is less than the capital accumulated on the contract. The remaining amounts cannot be transferred to a third party either. However, the reversal option allows for a percentage of the pension amount to be paid to the surviving spouse in the event of death.
How to choose between the two output options?
Both options have advantages and disadvantages. If the capital outflow is more favorable for contracts that go back 8 years and more, the annuity guarantees a stable income until death. Before making a choice, life policyholders must therefore take the time to analyze their income while considering their current personal situation and its development in the short or medium term.