Life and unemployment insurance: who is exempt from income tax?

In case of loss of employment, you can close all your life insurance contracts without paying a penny of the tax on the earned profits, whatever their amount! The conditions to be filled in order to benefit from the exemption too often passed in silence.

Life insurance contract products are in principle subject to income tax at the time of termination of the contract or on the occasion of a partial redemption. A total tax exemption may, however, be obtained in exceptional exceptional circumstances of which dismissal is a part.

To cover your expenses, you can decide to close your contract and recover your capital and capitalized interest (regardless of their amount) without going through the “Tax” box. You will, however, have to pay the social security contributions. In order not to wrongly claim this exemption, it is imperative to make sure that you are well satisfied with the draconian conditions required by the tax authorities.

Le Revenu tells you in practice how to take full advantage of this little-known exemption that can allow you to take a difficult break before finding a job.

A dismissal, but not a resignation or termination of CDD

The legislature has provided that in the event of a life accident, such as dismissal, you can close a life insurance policy by limiting the taxation of your earnings to social security contributions only. Article 125-0 A of the CGI and the currently applicable BOI instructions (BOI-RPPM-RCM-10-10-80 §100 of 20 December 2019) with reference to the “termination” of the contract, a partial redemption following a dismissal is therefore not covered by this exemption.

This tax deductible applies regardless of the duration of the life insurance contract and the same if this situation of unemployment concerns your spouse or partner linked by a PACS. As a result, you can take out life insurance with your name in the tax exemption and your spouse or partner has been fired. But such a tax exemption is subject to many conditions that must be respected.

First of all, you must be deprived of your employment for reasons beyond your control. What you assume has been fired by your employer for any reason (economic, misconduct, etc.). Termination of the employment contract may not result in a joint agreement with your employer. Therefore, if you are not unemployed as a result of a conventional termination of your employment contract, you are not eligible for a license exemption. (Rep.minist.Fouché n ° 14137 of 28 January 2016 taken over from the BOI).

You can no longer benefit and you have taken the initiative to attract your employment contract in resignation. Furthermore, the termination of a fixed-term contract (fixed-term contract) or the revocation of a corporate mandate, which do not constitute dismissal, do not entitle to an exemption. (BOI-RPPM-RCM-10-10-80 §103 of 20 December 2019).

Please note that if you are a trader, artisan or professional, you can also claim this exemption but only if you (or your spouse or partner in a PACS) have ceased to be self-employed as a result of a judicial liquidation judgment. Here, too, the text is of strict application. You cannot claim the exemption and you have voluntarily stopped your activity.

Finally, the termination of a life insurance policy following your early retirement or disability (or of your spouse or partner in a PACS) also allows you to claim this exemption (in case of disability, exemption applies to income tax and social security contributions).

A precise time frame for action

The exemption applies to products received until the termination of the contract provided that such termination occurs before the end of the year following that of dismissal.

Example: If your dismissal occurred in May 2022, your earnings will not escape taxation, because you will also liquidate the life insurance contract no later than December 31, 2023. Otherwise, the tax will be entitled to estimate that the closing of your contract is not motivated by the license and earnings will be taxed under normal conditions.

In addition, the exemption does not apply, which if you are registered as a job seeker at Pôle Emploi and have not found a job before the end of the period for which you claim the exemption, under penalty to lose the benefit (Rep.minist.Marleix n ° 97715 of April 3, 2012 taken over from the BOI).

Therefore, in our example, you must ensure that the outcome occurs before you have signed a new employment contract and no later than December 31, 2023.

Optimize your redemption

If you are the holder of several insurance contracts, the exemption applies even if you decide to close them all. But if you don’t need that much cash, you need to think twice before choosing the one you want to buy back. In particular, you have an interest in liquidating the contract that generated the largest gains or the one that would incur the heaviest taxation in the event of redemption.

Also be vigilant with the tax option to exercise when making your redemption transaction. If your earnings are tied to payments made up to September 26, 2017, the option for the 7.5%, 15% or 35% flat-rate levy should be set aside (this option is irrevocable) in order to benefit from exemption.

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