Most people think of life insurance as a policy which pays a capital when the insured person dies. But this interpretation of the advantages of a life insurance policy is too simplistic. Let us clarify.
Belgians do everything they can in order to reduce their taxes as much as possible. Today, they may take advantage of a big tax benefit, not only with pension savings, but also via a life insurance policy (branch 21). The premiums for a life insurance policy will thus entitle you to a tax benefit of 30% in the long-term savings scheme, with a ceiling of €2,350 (2019 revenues, 2020 fiscal year). The exact amount which you can set aside for long-term savings will depend on your income, but the absolute maximum is set at €2,350.
Furthermore, you are not obliged to include your premium in your tax declaration. If you do not do so, the capital paid at the expiry date will therefore not be taxed.
A life insurance policy provides you with several guarantees. It allows you to benefit from a death coverage, as well as save for a supplementary pension. You can also take out disability coverage. This ensures that you will have an income in the case of work incapacity. Another possible supplementary guarantee is a premium exemption, whereby the insurer pays the premiums for your insurance if you are unable to work.
When you take out a life insurance policy, you can designate a specific beneficiary of part of your inheritance. If you have several children and only designate one as a beneficiary of a life insurance policy, this will have an impact on the inheritance. The sound advice of a broker or a notary is therefore essential.
Tax on premiums
A 2% tax is due on the premiums for a life insurance policy. This is the case for branch 21 and branch 23 life insurance, except in the case of pension savings. For branch 26 products, you do not pay 2% tax on the premium, but you do pay withholding tax on the return. This withholding tax does not apply to branch 21 products, provided that the contract has existed for more than 8 years or that it includes a death coverage of 130%.
There are also fees associated with a life insurance policy. These are namely entry fees, broker's fees, possible management fees and exit fees. A broker can compare the fees for different companies and inform you of the best choice.
Difference with respect to pension savings
Any Belgian taxpayer can take out a pension savings for a maximum of €980 (2019 revenues, 2020 fiscal year) or €1260. In the latter scheme, the tax benefit is 25%, compared with 30% for the former. With a life insurance policy, the maximum premium will depend on income, and the tax benefit is always 30%.
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