Death Benefits and Beneficiary Clauses in Life Insurance

Life insurance is the favourite savings vehicle in France, and estate planning is one of the main reasons. With total assets exceeding 1,900 billion euros in 2024 according to France Assureurs, this wrapper holds a considerable share of household financial wealth. If life insurance is so popular, it is because it offers an exceptionally advantageous tax framework for passing on wealth, allowing a policyholder to transfer substantial capital to loved ones under far more favourable conditions than standard inheritance. A policyholder can transfer up to 152,500 euros per beneficiary with a maximum tax rate of 20 %, whereas standard inheritance rules would apply rates of up to 45 % for direct heirs and 60 % for unrelated third parties. But to fully exploit these advantages, you need to master the fundamental mechanisms: drafting the beneficiary clause, the allowances under Articles 990 I and 757 B of the French Tax Code, and the optional death benefits offered by insurers.

The beneficiary clause: the cornerstone of estate planning

Understanding the role of the beneficiary clause

The beneficiary clause is the contractual provision that designates the person or persons who will receive the life insurance capital upon the death of the policyholder-insured. It is this clause that gives life insurance its "outside inheritance" status: sums transferred via the beneficiary clause do not pass through the standard inheritance process managed by a notaire. They are paid directly by the insurer to the designated beneficiaries, outside the estate. This fundamental characteristic makes life insurance a unique estate planning tool in the French legal and tax landscape, granting the policyholder a freedom of designation that largely escapes the rules of forced heirship (reserve hereditaire).

The standard clause: effective for most families

The pre-drafted clause provided by insurers is generally worded as follows: "My spouse, not legally separated or divorced; failing that, my children born or to be born, living or represented, in equal shares; failing that, my heirs." This hierarchical clause suits the majority of standard family situations. The surviving spouse has priority. If the spouse has predeceased, divorced or been legally separated, the children receive the capital in equal shares. The phrase "living or represented" means that if a child has also died, their share passes to their own children (the policyholder's grandchildren). As a last resort, if no higher-ranking beneficiary is living, the legal heirs are designated. On policies such as Linxea Spirit 2, Lucya Cardif, Boursorama Vie or Fortuneo Vie, this standard clause is offered by default upon subscription, and the policyholder can validate it with a single click or customise it.

Customised clauses: tailoring the transfer to your situation

Freedom of designation is total. You can name as beneficiary your spouse, your children, your unmarried partner, a friend, a niece or nephew, a charity, a foundation, or any natural or legal person of your choice. For an unmarried and non-PACS couple, it is imperative to specifically name the partner in the clause, as they have no status as a legal heir. The recommended wording is: "Mr/Mrs [Full Name], born on [date] in [place]; failing that, my children..." For an unequal distribution among beneficiaries, you can specify the shares: "My spouse for 60 %, my children for 40 % in equal shares among them." Every formulation must be carefully considered and, if possible, drafted with the help of a notaire to avoid legal ambiguities.

The split-ownership clause: an advanced wealth planning tool

The split-ownership beneficiary clause (clause demembree) is a particularly powerful wealth planning technique for couples with children. It typically reads: "My spouse as usufructuary, my children born or to be born as bare owners, in equal shares." The surviving spouse receives the usufruct of the capital: they can receive income from it (interest, dividends) or use it for their needs, provided they return an equivalent value in due course. The children receive the bare ownership and will become full owners of the capital upon the death of the surviving spouse, without additional inheritance tax, since the split ownership "expires" naturally. This strategy protects the surviving spouse while preparing the ultimate transfer to the children, with optimised taxation.

Mistakes to avoid in drafting

Four errors recur frequently and can prove very costly for beneficiaries. First, the clause "my heirs" without further detail is dangerous: it causes the sums to fall into the standard inheritance, stripping them of life insurance's outside-inheritance status and associated tax advantages. Second, forgetting the "failing that" clause creates a major risk: if the first-ranked beneficiary has predeceased and no subsidiary beneficiary is designated, the capital reverts to the legal heirs under standard inheritance rules. Third, naming a beneficiary without sufficiently precise identification is problematic: "my son Paul" can generate a dispute if there are two Pauls in the family. Always add date and place of birth. Fourth, never updating the clause is a common mistake: divorce, remarriage, birth of a child, death of a beneficiary -- the clause must evolve with your life. Insurers such as Spirica (Linxea Spirit 2) or BNP Cardif (Lucya Cardif) allow you to amend the beneficiary clause online or by post at any time.

Taxation upon death: two regimes based on the age at which premiums were paid

The tax treatment of life insurance death benefits depends on a determining criterion: the age of the policyholder when the premiums were paid. Two regimes coexist, set out in Articles 990 I and 757 B of the French Tax Code.

Article 990 I of the CGI: premiums paid before age 70

This is the most advantageous regime, and the one that makes life insurance an unparalleled estate planning tool. It applies to premiums paid before the insured's 70th birthday, as well as to the gains and interest generated by those premiums.

The allowance is 152,500 euros per beneficiary. This amount is calculated per beneficiary, not per policy: if you have three policies with three different insurers and your son is named beneficiary on all three, all the capital received benefits from a single combined allowance of 152,500 euros. Above the allowance, the tax scale is as follows: 20 % on the taxable portion up to 700,000 euros, and 31.25 % above 700,000 euros. The surviving spouse (married or PACS partner) is fully exempt regardless of the amount, which means the 152,500 euro allowance is entirely available for other beneficiaries.

Article 757 B of the CGI: premiums paid after age 70

The regime applicable to premiums paid after the 70th birthday is less favourable, but it retains a real and often underestimated benefit. The allowance is 30,500 euros, shared globally among all beneficiaries and all policies held by the policyholder. Premiums paid after 70 above this 30,500 euro threshold are subject to standard inheritance tax based on the family relationship between the deceased and the beneficiary. However, and this is the crucial point: interest and capital gains generated on premiums paid after 70 are entirely exempt from inheritance tax. This exemption on gains represents a considerable advantage for a policyholder who invests post-70 premiums in dynamic options (unit-linked funds, equity ETFs) and generates significant gains over several years.

Worked example: the impact of Article 990 I on estate transfer

Let us take a concrete example to measure life insurance's advantage. Francois contributed 200,000 euros to his Linxea Spirit 2 policy before his 70th birthday. At his death, the policy is worth 350,000 euros thanks to capital gains. He named his two children as equal beneficiaries.

Each child receives 175,000 euros. After applying the 152,500 euro allowance per beneficiary, each child's taxable base is 175,000 - 152,500 = 22,500 euros. The tax amounts to 22,500 x 20 % = 4,500 euros. Each child therefore receives a net amount of 175,000 - 4,500 = 170,500 euros.

Under standard inheritance, the 350,000 euros would have been subject to inheritance tax after a 100,000 euro allowance per child. On the 75,000 euros taxable per child, the tax would have reached approximately 13,194 euros per child (progressive scale from 5 % to 20 %). Life insurance saves each child approximately 8,694 euros, a total of over 17,000 euros for the family. And this advantage is cumulative with the standard 100,000 euro inheritance allowance per child, because the two regimes are independent.

Optional death benefits offered by insurers

Beyond the tax framework for estate transfer, life insurance policies offer optional death benefits that provide additional protection for the capital transmitted.

Capital guarantee (garantie plancher): protecting the initial investment

The capital guarantee ensures that the capital paid to beneficiaries will not be less than the total premiums paid by the policyholder, even if the unit-linked funds have suffered significant losses. In other words, if the policyholder contributed 100,000 euros and the policy value is only 75,000 euros at the time of death due to a market downturn, the capital guarantee covers the 25,000 euro shortfall and the beneficiaries receive 100,000 euros. This guarantee has a cost, typically between 0.02 % and 0.10 % per year of the capital at risk (the difference between premiums paid and the policy value when the latter is lower). The cost increases with the policyholder's age and exposure to unit-linked funds. It is particularly relevant for dynamic profiles with significant equity exposure, where the risk of death during a market trough is a plausible scenario. On policies like Linxea Spirit 2 or Lucya Cardif, this option can be activated at subscription or later.

Indexed capital guarantee: a step above

An enhanced version of the basic capital guarantee, the indexed capital guarantee ensures the premiums paid are revalued at a fixed annual rate, often between 2 % and 3 %. Thus, if the policyholder contributed 100,000 euros and the indexed guarantee provides a 2.5 % annual revaluation, after 10 years the guaranteed floor will be approximately 128,000 euros, regardless of actual market performance. The cost is logically higher, between 0.05 % and 0.15 % per year, but this guarantee offers enhanced protection that can justify its price for older policyholders with a short- to medium-term estate planning objective.

Continuation of contributions guarantee (garantie de bonne fin)

This more specific guarantee ensures that planned regular contributions will continue to be made in the event of the policyholder's death, for a contractually defined period. It is mainly useful for policies opened in a minor child's name, where the objective is to build up regular capital to fund their education. If the subscribing parent dies, this guarantee enables the policy to continue being funded as planned.

Should you take out these optional guarantees?

The answer depends on your profile and your allocation. For a policy invested mainly in the euro fund (70 % or more), the capital guarantee is unnecessary because the euro fund capital is already guaranteed by the insurer. For a policy with significant unit-linked exposure (50 % or more), the basic capital guarantee is worth considering, especially if estate transfer is a priority and the policyholder is over 60. For young policyholders with a very long horizon, the cumulative cost of the indexed capital guarantee can become disproportionate relative to the actual risk, and it may be preferable to forgo it.

Transferring beyond the family: unmarried partners, third parties and charities

Transfer to an unmarried partner: the most dramatic advantage

An unmarried, non-PACS partner is the person who benefits most dramatically from life insurance transfer. Under standard inheritance, an unmarried partner is taxed at 60 % after a derisory allowance of 1,594 euros. Life insurance radically transforms this situation by applying the 152,500 euro allowance and the 20 % rate above that.

Consider the example of Francois, who, before his marriage to Nathalie, was living with a partner. Had he wanted to transfer 200,000 euros to his partner without life insurance, she would have received a net amount of only approximately 81,000 euros after 60 % taxation. With life insurance, she would have received 200,000 - (47,500 x 20 %) = 190,500 euros net. The tax saving exceeds 109,000 euros. This is why life insurance is absolutely essential for unmarried and non-PACS couples.

Transfer to a charity or foundation

Charities recognised as being of public benefit (reconnues d'utilite publique) and foundations of public benefit are exempt from inheritance tax on life insurance capital received. This is an effective philanthropic tool that allows you to support a cause after death, as a complement or alternative to a testamentary bequest.

Limitations: manifestly excessive premiums

Life insurance is not an absolute tool for circumventing inheritance law. If the premiums paid are deemed "manifestly excessive" (manifestement exagerees) relative to the policyholder's assets and income, the forced heirs (primarily children) can challenge and request the reintegration of the sums into the standard inheritance. Courts assess this excessive nature on a case-by-case basis according to four criteria: age and health at the time of contributions, overall financial situation, proportion of total wealth invested in life insurance, and the economic utility of the policy for the policyholder. There is no fixed threshold, but a contribution representing more than 50 % of the assets of an elderly and unwell person will be more easily deemed manifestly excessive.

Practical strategies for optimising estate transfer

Before 70: maximise Article 990 I

The absolute priority before 70 is to maximise contributions to take advantage of the 152,500 euro allowance per beneficiary. If you have three children, you can transfer up to 457,500 euros completely tax-free (3 x 152,500 euros). Adding an exempt spouse, the potential for tax-free transfer is considerable. Multiply beneficiaries to multiply allowances: grandchildren, nieces and nephews, godchildren can also be named, each benefiting from their own 152,500 euro allowance. If possible, open a separate policy for each transfer objective, which simplifies beneficiary clause management and wealth tracking.

After 70: exploit the exemption on gains

Contrary to popular belief, you should continue contributing after 70. The 30,500 euro allowance is admittedly modest, but the total exemption on gains is a powerful lever. To maximise this advantage, favour dynamic options (equity ETFs, SCPIs) on premiums paid after 70: the greater the gains, the more valuable the exemption. A 50,000 euro contribution in equity ETFs after 70 that generates 30,000 euros in capital gains over 10 years allows the transfer of 80,000 euros, of which 30,000 euros is completely exempt. Only 50,000 - 30,500 = 19,500 euros is subject to inheritance tax.

Diversify insurers for estate transfer

Diversification among insurers (Spirica for Linxea Spirit 2, BNP Cardif for Lucya Cardif, Generali for Boursorama Vie) has no direct tax impact on transfer, since allowances are calculated per beneficiary regardless of the number of policies. However, it offers additional security via the FGAP guarantee ceiling (70,000 euros per insurer) and greater flexibility in managing beneficiary clauses.

The procedure upon death: steps and timelines

Upon the death of the insured, the beneficiaries or the notaire must declare the death to the insurer, providing the death certificate. The insurer then verifies the beneficiary clause and identifies the designated beneficiaries. They must compile a file comprising the death certificate, proof of identity, proof of address and bank details. The insurer calculates the applicable taxation (Article 990 I or 757 B as appropriate) and deducts the tax before payment. By law, the insurer has one month after receipt of the complete file to pay the funds to the beneficiaries. Beyond this deadline, late-payment interest at double the legal rate is due.

For people who are unaware whether they are named as beneficiary on a policy, the AGIRA scheme (Association pour la Gestion des Informations sur le Risque en Assurance) enables a free online search at agira.asso.fr. Each year, AGIRA helps locate tens of thousands of unclaimed policies, whose total assets run into billions of euros.

Conclusion

Life insurance is an exceptional estate planning tool in the French tax landscape. The 152,500 euro allowance per beneficiary on premiums paid before 70, the total exemption for the surviving spouse, the exemption of gains on post-70 premiums, and the near-total freedom to designate beneficiaries make this product an indispensable pillar of any wealth strategy. As illustrated by the case of Francois, a self-employed tradesman keen to protect Nathalie while preparing the transfer to Julien and Marine, the split-ownership beneficiary clause and the choice of high-performing policies like Linxea Spirit 2 and Lucya Cardif allow every euro transferred to be optimised. The key lies in careful drafting of the beneficiary clause, advance planning of contributions based on age, and regular review of the entire arrangement as your family and financial circumstances evolve.

The information presented is for informational purposes only and does not constitute wealth management advice. The taxation of life insurance upon death is complex and depends on many individual factors. Consult a notaire or a qualified wealth adviser for a personalised analysis. Sources: Code des assurances, CGI articles 990 I and 757 B, BOFiP, France Assureurs.