Kevin Begon -

What is life insurance for?

Seven out of ten Belgians sometimes wonder how to protect their family financially. This is what emerges from a survey conducted by Profacts for BNP Paribas Fortis. Life insurance can help protect your family if something happens to you, but it has other benefits too.

"There are actually three types of life insurance," explains Nicolas Dubois, Head of Business Development Protect. "In the case of term life insurance, the insurer pays a predetermined amount to a designated beneficiary if you die before the contract's expiry date. In the case of pure life insurance, you receive a predetermined sum on a predetermined date (e.g., at retirement). Generally, we choose the third type, mixed life insurance; here, the insurer pays you a sum on the agreed expiry date or to the beneficiary if you die prematurely."

Protecting your loved ones

By taking out term life insurance or mixed life insurance, you spare your loved ones financial worries. If you die prematurely, your loved ones will receive a fixed amount, which will enable them to maintain their standard of living as much as possible, finance important activities for your children, such as higher education or starting adult life. You can also provide a sum with which your heirs will pay inheritance tax. There are many ways to protect your loved ones if you were to pass away.

Protecting yourself

"Life insurance or mixed life insurance is a way to build up a supplementary pension," stresses Nicolas Dubois. "You can thus partially compensate for the loss of income after retirement. The premiums you pay are accumulated, and at the end of the contract (generally, at retirement age), the accumulated capital is released. Depending on your contract, you can choose to receive a lump sum or a pension for the rest of your life."

Paying less tax 

Life insurance is fiscally interesting, as premiums are tax-deductible under certain conditions. You therefore benefit from a tax advantage through pension savings or long-term savings. The exact advantage depends on the premium paid and any other forms of pension savings or long-term savings you have.

If the life insurance premiums have been tax-deducted, the paid-out capital will be subject to a one-off levy at the end of the contract or at death. The amount of this levy depends on the date on which you take the capital and the moment when you paid the premiums.

Protecting a gift 

A lesser-known advantage is that term life insurance can also be useful if you want to give a sum of money without paying gift tax. "If you die within three years of the gift, it is considered part of your estate, and the beneficiary will have to pay inheritance tax," notes Nicolas Dubois. "With temporary death insurance, the beneficiary will receive a sum that will allow them to pay these inheritance taxes. The usefulness of such term life insurance varies from case to case. It is better to discuss this possibility with your banker, who can examine your personal situation and give you the best advice."  

Planning your estate

Term life insurance or mixed life insurance can also serve to settle your estate. You can allocate part of your estate to your grandchildren upon your death, thus skipping a generation. During your lifetime, you can also give part of your estate through a controlled patrimonial transfer linked to life insurance, retaining control over the estate and the beneficiaries until your death. Discuss this with your notary.

About Ask Your Bank 

BNP Paribas Fortis wants to help you see things more clearly when it comes to money. That's why we asked over 1,000 Belgians what their questions and concerns were. With the Ask Your Bank series, we answer them transparently.