Life insurance (assurance vie) plays a central role in wealth transfer strategy in France. Thanks to its special tax treatment -- which departs from ordinary inheritance law -- it allows the policyholder to transmit capital to designated beneficiaries under often very advantageous tax conditions, particularly when the beneficiaries are not direct-line heirs. This regime, primarily governed by Articles 757 B and 990 I of the Code General des Impots (CGI), rests on a fundamental distinction: the age of the insured at the time contributions were made. Understanding this framework is essential for optimising wealth transfer through life insurance.
Contributions Made Before Age 70: Article 990 I CGI
The 152,500 Euro Allowance Per Beneficiary
For premiums paid before the insured's 70th birthday, each designated beneficiary has an allowance of 152,500 euros. This allowance is assessed per beneficiary and across all contracts taken out by the insured with different insurers. If an insured has designated their two children as beneficiaries of three different contracts, each child has a single 152,500 euro allowance on the total capital received.
Beyond the allowance, the capital is subject to a specific levy, separate from standard inheritance tax:
- 20% on the portion between 152,500 euros and 852,500 euros (i.e., on a bracket of 700,000 euros)
- 31.25% on the portion exceeding 852,500 euros
This schedule is significantly more favourable than standard inheritance tax rates for direct-line heirs (which go up to 45%) and incomparably better than rates between non-relatives (60%). This is one of the main attractions of life insurance as a wealth transfer tool in France.
The Scope of the Levy: Capital + Interest
An important point: under the Article 990 I regime, the levy is calculated on the total capital paid to the beneficiary, meaning the premiums contributed by the insured plus all interest and capital gains generated. It is therefore the value at the time of death that counts, not just the premiums paid. A contract whose premiums have doubled thanks to strong performance will be taxed on the death value.
Worked example: Gerard, 72, former business owner
Gerard, 72, a former construction company owner, took out a Linxea Spirit 2 contract 20 years ago. He funded it with 500,000 euros in contributions made between ages 52 and 68 (thus before turning 70). Thanks to a diversified allocation between a euro fund and unit-linked investments (global ETFs, REITs), the contract is worth 780,000 euros at the time of his death.
Gerard designated his three children as equal beneficiaries.
Share per child: 780,000 / 3 = 260,000 euros
Tax per child (Article 990 I):
- Allowance: 152,500 euros
- Taxable base: 260,000 - 152,500 = 107,500 euros
- Levy: 107,500 x 20% = 21,500 euros
- Each child receives net: 260,000 - 21,500 = 238,500 euros
Total levied: 3 x 21,500 = 64,500 euros, an effective rate of 8.27% on the 780,000 euros transferred.
Comparison with standard inheritance: If the 260,000 euros had been transferred via standard inheritance (after the 100,000 euro allowance per child for direct-line heirs), the tax would have been approximately 32,194 euros per child, or 96,582 euros in total. Life insurance saves 32,082 euros in transfer taxes for the three children.
Gerard had also contributed 50,000 euros after turning 70 on a second Boursorama Vie contract, whose gains and taxation fall under the different Article 757 B regime (see below).
Contributions Made After Age 70: Article 757 B CGI
The Global 30,500 Euro Allowance
For premiums paid after the insured's 70th birthday, the regime is noticeably less favourable. A global allowance of 30,500 euros applies, but unlike the 152,500 euro allowance which is individual per beneficiary, this one is shared across all beneficiaries and all contracts combined.
Beyond 30,500 euros, the premiums paid (excluding interest) are reintegrated into the estate and subject to standard inheritance tax according to the usual rates, taking into account the family relationship between the insured and each beneficiary.
The Overlooked Advantage: Complete Exemption of Interest
A crucial point often neglected by savers: only the premiums paid are taxable under the Article 757 B regime. The interest and capital gains generated by those premiums are completely exempt from inheritance tax. On a contract held long after age 70 (15, 20 years or more), this advantage can be substantial.
An insured who contributes 100,000 euros after age 70 and holds the contract for 20 years at an average return of 4% per year will see the contract reach approximately 219,000 euros. The 119,000 euros in interest will be transferred completely tax-free, while only 69,500 euros of premiums (100,000 - 30,500 allowance) will be reintegrated into the estate.
| Criterion | Article 990 I (before age 70) | Article 757 B (after age 70) |
|---|---|---|
| Allowance | 152,500 euros per beneficiary | 30,500 euros total (shared across all beneficiaries) |
| Taxable base | Capital transferred (premiums + interest) | Premiums paid only (excluding interest) |
| Applicable rates | 20% then 31.25% | Standard inheritance tax rates |
| Interest exemption | No (interest is taxed) | Yes (complete exemption) |
| Spouse exemption | Yes (complete) | Yes (complete) |
| Contracts concerned | Premiums paid before age 70 | Premiums paid after age 70 |
How the Two Regimes Interact
A Single Contract Can Fall Under Both Articles
If an insured made contributions both before and after age 70 on the same contract, each contribution falls under its own regime:
- Capital corresponding to pre-70 contributions: Article 990 I (152,500 euro allowance per beneficiary)
- Premiums paid after 70: Article 757 B (global 30,500 euro allowance)
The insurer handles the allocation and provides the necessary information to the tax authorities and the beneficiaries. In practice, insurers maintain a dual accounting history of contributions broken down by the insured's age at the time of each payment.
Contracts Taken Out Before 20 November 1991
Contracts taken out before 20 November 1991 benefit from an even more favourable historical regime: premiums paid before 13 October 1998 are completely exempt from any levy, regardless of the insured's age at the time of payment and regardless of the amount transferred. These very old contracts are genuine tax shelters for wealth transfer, and it is imperative never to close them as long as this historical exemption persists.
Key dates for death benefit taxation
- Before 20/11/1991 (subscription date) and before 13/10/1998 (contribution date): complete exemption
- After 20/11/1991 and contributions before age 70: Article 990 I (152,500 euro allowance per beneficiary)
- After 20/11/1991 and contributions after age 70: Article 757 B (global 30,500 euro allowance)
- After 13/10/1998 (contribution date): systematic application of Articles 990 I or 757 B based on age
These dates apply contract by contract and contribution by contribution. Maintaining a precise record of your contributions is crucial.
Drafting the Beneficiary Clause: A Major Tax Issue
Optimising the Number of Beneficiaries
Since the 152,500 euro allowance (Article 990 I) applies per beneficiary, increasing the number of beneficiaries multiplies the allowances. This strategy is particularly effective for large life insurance portfolios.
A capital of 600,000 euros (contributions made before age 70):
| Number of beneficiaries | Total allowance | Taxable base | Total levy |
|---|---|---|---|
| 1 beneficiary | 152,500 euros | 447,500 euros | 89,500 euros |
| 2 beneficiaries | 305,000 euros | 295,000 euros | 59,000 euros |
| 3 beneficiaries | 457,500 euros | 142,500 euros | 28,500 euros |
| 4 beneficiaries | 610,000 euros | 0 euros | 0 euros |
With 4 beneficiaries, the 600,000 euro capital is transferred with zero tax. The savings between 1 and 4 beneficiaries amount to 89,500 euros.
Pitfalls of the Standard Clause
The standard beneficiary clause -- "my spouse, failing which my children born or to be born, living or represented, failing which my heirs" -- is not always optimal. It should be tailored to each family and financial situation. For example, in a blended family, this clause would exclude stepchildren. For a person without children, it could direct capital to distant heirs who face high tax rates.
It is possible to designate:
- Close or distant relatives
- Friends or unrelated third parties
- Recognised charities or public interest foundations (exempt)
- Legal entities
Dismemberment of the Beneficiary Clause
Dismembering the beneficiary clause (demembrement de la clause beneficiaire) is an advanced wealth planning technique that splits the usufruct (or quasi-usufruct) of the capital to one beneficiary (typically the spouse) and the bare ownership (nue-propriete) to other beneficiaries (typically the children).
How it works in practice:
- The surviving spouse receives all the capital as quasi-usufructuary: they can use it freely during their lifetime
- The children hold a restitution claim (creance de restitution) on the surviving spouse's estate, deductible from that estate
- Since the spouse is completely exempt (TEPA Act 2007), no levy is due on their behalf
- Each child benefits from the 152,500 euro allowance at the first death
The advantage is twofold: the spouse retains full use of the funds, and the children benefit from the 152,500 euro allowance at the first death while recovering the funds (via the deductible restitution claim) at the second death.
The Surviving Spouse
Since the TEPA Act of 21 August 2007, the surviving spouse (married or in a PACS) is completely exempt from inheritance tax. This exemption extends to the Article 990 I levy. A spouse who is a life insurance beneficiary therefore pays no tax or levy whatsoever, regardless of the amount transferred.
This complete exemption impacts beneficiary clause strategy. Since the spouse is exempt in all cases (life insurance or inheritance), designating the spouse as sole beneficiary of a life insurance contract provides no specific tax advantage over standard inheritance. The benefit of life insurance for the spouse lies more in the speed of payment (outside the estate, thus outside estate settlement delays) and immediate availability of the capital.
Transfer Strategy Based on Contribution Timing
Before Age 70: Maximise Contributions
The 152,500 euro allowance per beneficiary makes pre-70 contributions extremely advantageous for wealth transfer. An insured with two children and three grandchildren can designate all five descendants as beneficiaries, mobilising 5 x 152,500 = 762,500 euros in allowances. This strategy can be implemented through accessible contracts like Linxea Spirit 2 or Lucya Cardif, without requiring premium contracts.
After Age 70: Do Not Give Up
Contrary to popular belief, it remains worthwhile to contribute to life insurance after age 70. The 30,500 euro allowance is modest, but the complete exemption of interest can represent a substantial advantage over the long term. A contribution of 200,000 euros at age 71, with a 3.5% annual return, generates approximately 100,000 euros in interest over 15 years, entirely exempt from inheritance tax. By comparison, transferring this 100,000 euros through standard inheritance would cost between 20,000 and 40,000 euros in tax depending on the family relationship.
Beware of reclassification as an indirect gift
If contributions to a life insurance contract are "manifestly excessive" (primes manifestement exagerees) relative to the insured's wealth and income, forced heirs or the tax authorities may seek reclassification as an indirect gift and reintegration of the premiums into the estate. Case law assesses the excessive nature on a case-by-case basis, considering the insured's age, overall wealth, income, and the purpose of the contract. Consult a notary or tax lawyer if your contributions represent a very large share of your assets.
Reporting Obligations at Death
At the insured's death, reporting obligations are divided between the insurer and the beneficiaries:
The insurer must:
- Report the capital paid to the tax authorities (Form 2705-A for Article 990 I)
- Withhold the Article 990 I levy before paying the funds to the beneficiaries
- For Article 757 B, inform the beneficiaries and the notary of the reintegration of premiums into the estate
The beneficiaries must:
- Mention the capital received in the inheritance tax return, even if an allowance or exemption applies
- Provide the insurer with identity documents and a certificate of life
- Keep all documents provided by the insurer for their own tax return
The insurer typically pays out the capital within one to three months of receiving all required documents, independently of estate settlement timelines.
Conclusion
The tax regime of the beneficiary clause makes life insurance an indispensable wealth transfer tool in France. The combination of the 152,500 euro allowance per beneficiary for pre-70 contributions, the complete spouse exemption, the interest exemption after age 70, and optimised beneficiary clause drafting allows the transfer of substantial capital under very favourable tax conditions. The key lies in planning ahead: funding contracts before age 70, tailoring the beneficiary clause to your family situation, and considering dismemberment for larger estates.
The tax information presented in this article is current at the time of writing and is provided for informational purposes only. It does not constitute personalised tax advice. For any wealth management decision, consult a notary or tax lawyer.