We don’t have a mortgage so do we need life assurance?

In most but not all circumstances life assurance is only necessary when you don’t have sufficient capital or income to survive without the deceased being around any more, although “assurance vie” can also be of great benefit when dealing with an inheritance tax bill especially if you are intending on leaving an inheritance to a non blood relative.

The average thirty something couple with a couple of kids are unlikely to have sufficient capital to deal with the prospect of one of the parents dying. For example, if the father earns €50,000 each year and the spouse, whilst trying to look after the children, manages to work a few hours a week. However should the father die, she is now €50,000 a year worse off. Does she need life assurance? I think we can all see what the answer is going to be. And what if the mother dies before the father? Father now has to arrange for daytime child care as well as covering the costs of cleaning, cooking and laundry. So there is also a strong case for covering the spouse as well.

The fact remains that very few people are planning on dying right now so why introduce another bill? Let’s look at some numbers. How much does it cost to cover an average family car for a 35 year old? Before being bombarded with quotes, let’s say it’s €500 per year. What benefit is being covered? Around €15,000, so for €500 p.a. one receives €15,000 cover. How much buildings insurance and contents cover could you get for €500 p.a.? I will guess at €150,000 buildings and €50,000 contents. This seems to be a better deal than the car at least. With both of the examples above, the choice is not really given as you must have car insurance and most people want the security of having buildings and contents insurance. Now let’s take our couple and see how far the €500 p.a. will go to give them some life assurance. Assuming a fixed term of 20 years until their children are off their hands, this could buy both of them cover of over €130,000. In reality, this probably is not enough to cover their needs but just goes to show what benefits apply to different types of policy.

There are a number of different types of life assurance policy funded by regular or single payments. The cost need not form a large part of your budget and should be seen as essential as the premiums you pay on other insurances as your car is unlikely to pay any tax bill for you!

Steve Grover

http://www.financialexpat.com/

Phone: +33 (0)325461631

Mobile: +33 (0)687980941

Fax: +33 (0)351983124

Steven Grover is a consultant for The Spectrum IFA Group

What is Assurance Vie, and what are the advantages ?

Assurance Vie is a type of Life Insurance scheme where you can invest in a huge range of different managed funds, enabling you to invest very tax efficiently in France.

From an inheritance tax point of view a policy is of greater benefit if it is started before becoming tax resident in France, because it will then be completely free from French succession tax. Unless the life assured is over the age of 70 at the time the policy was set up, or at the time any top-ups are made. But even if the Assurance Vie is arranged after you have become French resident, for any named beneficiaries to the policy payments in the event of death there’s a succession tax exemption of €152,500 per beneficiary, after which a flat-rate tax of just 20% normally applies.

Assurance Vie can also help with Wealth tax as you may be eligible to not pay wealth tax (depending on your nationality) on the fund for up to 5 years, if the policy is French tax approved but remains outside of France.

French capital gains and income tax does not apply if the income and gains are made within the policy and no withdrawals are made. Even where an amount is withdrawn only the growth element is taxable, for example if your portfolio of assets held within the policy has grown by 5% only this percentage of the withdrawal would be taxable, the remaining 95% would be tax-free. Any gains are liable to 'social charges' of 11% when they are drawn down, plus taxation on a sliding scale depending on how long the policy has been in force, 35% for a policy less than 4 years old, 15% for policies between 4 & 8 years old and then 7.5% for all policies over 8 years old. Then you have the choice of having the applicable tax deducted 'at source', or being paid gross and declaring the gains on your tax return. This is obviously advantageous if you are paying less than this rate of tax. Also after 8 years, there is an annual tax-free allowance of 4,600 euros (single person) or 9,200 euros (married couple) of GAINS. So the 7.5% tax would not apply if you staggered the withdrawals (e.g. to supplement your pension).

Steve Grover
http://www.financialexpat.com/
Phone: +33 (0)325461631
Mobile: +33 (0)687980941
Fax: +33 (0)351983124

Steven Grover is a consultant for The Spectrum IFA Group