French people’s savings invested through life insurance policies represent nearly €1,700 billion, or 30% of household financial assets.
This success can be explained by the fact that life insurance combines a number of advantages: savings available at any time thanks to the redemption option, which allows savings to be recovered if necessary (for retirement in particular), and a tool for passing on savings in the event of death, since the savings accumulated within the policy go to one or more beneficiaries determined by the beneficiary clause; all within the framework of a privileged tax system in terms of both income tax and inheritance tax.
Thus, each year several billion euros are invested by the French in life insurance policies. 2018 was a record year with net inflows of almost €22.4 billion.
To designate the beneficiary, the application form includes standard clauses that can be ticked off according to the standard proposals made by the insurance companies. There is often little space to personalise the clause and policyholders do not take the time to think about drafting a suitable, personalised and optimised clause.
Choosing the standard clause is often simpler and faster: this is the choice made by the majority of policyholders. However, this proposal is often basic but it is always possible to correct it at any time by modifying the beneficiary clause to improve it. Moreover, other solutions can be chosen by setting up a real optimisation strategy that requires a tailor-made drafting.
It is also possible to provide for more sophisticated clauses such as dismemberment of ownership or option clauses.
Formal requirements for drafting the beneficiary clause
The beneficiary clause is the one that allows the subscriber of a life insurance contract to designate the person or persons who will receive the benefit of the life insurance contract upon the death of the insured.
There is no particular formality for designating or revoking a beneficiary clause. Depending on the case, it is possible to :
– designate the beneficiary clause at the time of subscription, directly in the insurance contract,
– to do so in a written document separate from the contract, which it is strongly recommended to send to the insurance company by registered mail,
– in a will.
Unlike a holographic will, the beneficiary clause does not need to be handwritten and can be typed.
Points to watch out for when drafting the beneficiary clause
– Number of beneficiaries: it is possible to designate one or more beneficiaries and to allocate different percentages to each of them.
– Quality of the beneficiary: the beneficiary may be a natural person but also a legal entity (e.g. association).
– Designation: beneficiaries do not have to be designated by name. It is sufficient that they are identified or identifiable. They can be designated by their capacity: for example, my spouse, my mother, my sister-in-law…. In this case, it is the person who has the capacity at the time of the settlement of the contract who is the beneficiary.
– Notion of spouse: the spouse is the one who is married but not the one who is simply in a civil partnership or who lives in a common-law relationship. In case of cohabitation, it is preferable to designate the person by name because the notion of cohabitation can sometimes be interpreted.
– Second-ranking beneficiary: it is recommended to provide for second-ranking beneficiaries in case of death (or renunciation) of the first-ranking beneficiary. In particular, if one designates one’s children as beneficiaries and one of the children dies before the policy is settled, his or her share will go to the other siblings. If you want your predeceased child’s share to go to your own children (grandchildren), as in the case of inheritance, you should specify this precisely in the beneficiary clause.
– Absence of a beneficiary: it is important that there should always be an accepting beneficiary, because otherwise the life insurance policy will fall into the estate (and lose its favourable inheritance tax regime). To avoid such a situation, it is advisable to indicate as ultimate beneficiary one’s heirs in case all other beneficiaries have died or renounced. If a will is drawn up, it should be specified whether the term heir refers to the legal heirs or the testamentary heirs.
– Minor beneficiary: when the beneficiary is a minor child, it is possible to designate a third party administrator who will be responsible for managing the capital on behalf of the minor child. This third party administrator is not necessarily the child’s surviving parent.
Overall settlement of the estate
Since a life insurance policy is terminated by the death of the insured, it must be accompanied by the opening of the deceased’s estate and the transmission of his other financial and real estate assets.
On the pretext that life insurance is an asset outside the estate (due to the insurance mechanism of stipulation for third parties), the drafting of the beneficiary clause is often insufficiently coordinated with the settlement of the estate, whereas a global reflection is a real source of both legal and fiscal optimisation.