What is life insurance?

First of all, let’s start by defining what life insurance is not. Life insurance is not accidental death insurance. In an accidental death insurance policy, the insurer promises to pay designated beneficiaries an annuity or a capital when the insured passes away during a specified period of time. Accidental death insurance is commonly bought to ensure family members’ financial security as, for instance, allowing to pay off a loan or to pay children’s tuition. If the insured lives beyond the term period, no cash values or loans values are paid. Permanent life insurance is a policy where the insurer promises, against premium payments, to pay a capital or an annuity to a designated person (the beneficiary) if the insured dies during a specified period of time or lives beyond the term period.

An attractive investment product

Over the last few years, permanent life insurance has been more and more used as an investment product. It allows you to reach financial and wealth goals and combines various investment vehicles with a specific legal framework and a preferential tax treatment.  

Several types of life insurance policies are proposed depending on duration, output options (annuity or capital), investment options and investor profile (low-risk products offering the possibility of guarantee at maturity or financial insurance products under free and discretionary management). 

A unique protection in Europe

Luxembourg legislation provides complete protection to life insurance policy holders. The main strength of this investment protection regime is the requirement, by law, that all client assets must be held by an independent custodian bank appointed by the life insurance company and approved by the Luxembourg insurance regulator. This arrangement is known as “Triangle of Security”. The mentioned regime provides for the legal separation of the assets of the policy from the assets of the assurance company, meaning that the creditors of the company cannot seize the assets of the policy. Furthermore, the custodian bank is required to use the clients’ assets solely for the purposes of the investment and is bound by the regulator’s legal powers to protect policyholders’ interests. 

New tax treatment since the 1st January 2016

Since the 1st January 2016, the European Directive on administrative cooperation in the field of taxation will extend the scope of automatic exchange of information to life insurance policies of all clients residing in another Member State of the European Union (outside Luxembourg).

In other words, if you are not a Luxemburgish resident, your insurance company will collect your data (number and value of your life insurance policy on the 31st December or on the expiration date and amount in case of surrender or maturity) and transfer them the following year (in 2017) to the Luxembourg tax administration to be forwarded to the tax administration of your country of residence.

You have understood it, life insurance policies are financially advantageous and complete, but can be very complex. Ask about the various offers, compare them and be sure that you understand the clauses of the insurance contract before signing.   

Articles that might interest you

  • Every company wants to be green, ethical, responsible, socially conscious etc. Is this possible? And does Sustainable and Responsible Investment really make a difference?

  • If you have followed the previous posts you are an advanced saver by now! If you have managed to set aside some spare savings that you will not need in the short term you should continue to read this article…

  • A share is a unit of ownership delivered by a capital company. In most cases, it is a commercial company with a limited liability. Holding one of several shares – in other words, being a shareholder – means that you own a part of the company’s capital but you are not held personally liable for the company’s debts.