Introduction
If there is one investment everyone has heard of, it is life insurance. It has become almost a must-have in the French wealth landscape.
Your parents, your banker, or people around you at work may well talk about it regularly as an obvious product, “an absolute must”.
Yet behind this apparent popularity, many received ideas circulate: “it is locked for 8 years”, “it is only for large fortunes”, “it is an outdated investment”, or “the charges are outrageous”.
So what is the reality? Does life insurance still deserve its place as a flagship product in 2025? In this article, we offer a clear, structured and objective reading to understand how it works, identify its advantages and its limits, and decide whether or not it has a place in your wealth strategy.
What is life insurance?
Despite its name, life insurance has little to do with death insurance.
In reality, it is above all a genuine Swiss army knife of savings, which lets you invest, save gradually, and pass on your capital in a favourable tax framework.
In practice, it is a contract between a policyholder (you) and an insurer. You pay an amount into this contract, which you can then allocate to different investment vehicles: secure vehicles (euro funds) or more dynamic ones (unit-linked funds).
Life insurance gained popularity in the 80s and 90s, in particular thanks to lighter taxation on gains, but also through how flexible it is to use.
Today it is one of the most widely used tools among French savers, whatever their level of wealth.
How does life insurance work?
It rests on a simple principle: you feed your contract with free or scheduled payments. These amounts are then invested according to your choice, with almost total freedom in the management.
Two broad categories of vehicle are offered:
- Euro funds are guaranteed: the capital invested cannot fall. They make up the “cautious” part of the contract.
- Unit-linked funds, for their part, let you invest in shares, bonds, SCPI, ETF, and so on.
They offer greater return potential, but carry a risk of capital loss.
Contrary to a persistent idea, the amounts invested are not locked for 8 years. You can make withdrawals (known as “partial or total surrenders”) at any time, partially or in full. The famous 8-year period is in fact a tax threshold, from which gains benefit from a specific allowance.
| Types of vehicle | Security | Estimated return | Risk |
|---|---|---|---|
| Euro funds | High | 1.5% to 2.5% | Low |
| Unit-linked funds | Variable | 3% to 8% (hoped for) | Medium to high |
The undeniable advantages
Life insurance retains several advantages that justify its success, provided you choose a good contract and use it intelligently.
Availability of the funds
Contrary to a received idea, you have access to your savings whenever you want. The contract is liquid, and withdrawals are possible at any time.
Optimised taxation after 8 years
From the eighth year of the contract, you benefit from an annual allowance on the gains withdrawn: 4 600 € for a single person, 9 200 € for a couple. In some cases this lets you withdraw gains entirely free of tax.
Passing on wealth made easier
In the event of death, the capital passed on to a named beneficiary does not go into the estate, up to 152 500 € per beneficiary (outside any specific death insurance).
Life insurance taxation: what changes after 8 years
Taxation depends on two factors: the date of the contract and how long you have held it. Since 2018, the flat tax (30%) applies by default, but life insurance keeps its appeal after 8 years thanks to the annual tax allowance.
Note that the social levies share (17.2%) is always due, whatever the tax regime chosen.
| Length of the contract | Tax on the gains | Annual allowance |
|---|---|---|
| Less than 8 years | Flat Tax 30% | None |
| More than 8 years | Flat Tax 30% | 4 600 € / 9 200 € depending on the situation |
| More than 8 years | Option for income tax | If the scale is more favourable |
Payments (net premiums paid) before 27 September 2017 = taxation unchanged
| Length held | Taxation |
|---|---|
| Between 0 and 4 years | Your choice: inclusion in taxable income or PFL of 35% + social levies |
| Between 4 and 8 years | Your choice: inclusion in taxable income or PFL of 15% + social levies |
| More than 8 years | After an allowance of 4 600 € (single) or 9 200 € (couple): inclusion in taxable income or PFL of 7.5% + social levies |
Payments (net premiums paid) after 27 September 2017 = new regime
| Length held | Taxation |
|---|---|
| Between 0 and 8 years | 12.8% flat-rate levies + 17.2% social levies = 30% |
| Beyond 8 years (with an annual allowance of 4 600 € single / 9 200 € couple) | Inclusion in taxable income possible if the tax rate is < 12.8% |
| Payments ≤ 150 000 € (*) | 7.5% flat-rate levies + 17.2% social levies = 24.7% |
| Payments > 150 000 € | 12.8% flat-rate levies + 17.2% social levies = 30% |
A focus on the Prélèvement Forfaitaire Unique (PFU) or Flat Tax and the old life insurance rules before September 2017. (*) All contracts taken together and whatever the dates of subscription and payment.
Do you want to go further?
A life insurance policy can be an exceptional tool… or a disappointing product, if it is badly selected or badly used. The differences between contracts are sometimes considerable: charges, vehicles offered, quality of management…
At WYP Consulting, our advisers support you to:
- Select the contract best suited to your goals, your investment horizon and your risk profile
- Optimise your tax position in the short and the long term
- Build an asset allocation that is coherent, effective and under control.
Do you have a life insurance policy and not know whether it is well managed? Do you want to open one but not know where to start? We offer you a free review of your wealth situation.
