Assurance vie remains the leading investment product in France, held by 41% of households, with funds upwards of €2 trillion. The product is also widely used by international property owners in France.
One of its attractions is the favourable tax treatment available on withdrawals, but it is also an important tool for inheritance planning, as it escapes French inheritance taxes and laws — within limits.
While most policies are French based, a growing number of investors, concerned about political and economic uncertainty in France, are turning to the Grand Duchy, seen as a haven of stability and legal protection.
According to recently published official figures, in 2024, French investments in Luxembourg life insurance rose sharply — up 58% to reach €13.8 billion. “Most of the assets we manage are no longer in France but are being transferred to Luxembourg life insurance contracts, and this trend is really accelerating,” says Guillaume Lucchini, founder of Scala Patrimoine.
Contrary to popular belief, this shift is not driven by tax advantages but by a quest for security. “There is a very worrying overall context. On a societal level, there is real tension, and this is reflected in investments. Today, people are afraid for their wealth,” explains François-Xavier Sœur, wealth manager at Terra Patrimoine.
The Luxembourg Advantage
Luxembourg offers a regulatory framework renowned for its strength, built on two key protections: the “super privilege” and the “security triangle.”
In the event of an insurer’s bankruptcy, Luxembourg policyholders enjoy first-rank creditor status, taking precedence over the state, social security organisations, and employees. In France, savers are only sixth in line, with a guarantee limited to €70,000 by the Fonds de Garantie des Assurances de Personnes.
In Luxembourg, policyholders’ assets are segregated from the insurer’s balance sheet and held by a depositary bank under the supervision of the Commissariat aux Assurances (CAA). This means that if an insurer fails, savers have a direct claim over their segregated assets and can, in theory, recover them in full.
It is not an “unlimited guarantee” as sometimes described, but rather a legal structure that prioritises the client above all other creditors — a distinction that has made Luxembourg the gold standard in Europe.
Nevertheless, the status of Luxembourg as a safe haven for assurance vie faced a test in 2024, when FWU Life Insurance Lux S.A. went into liquidation, affecting around 30,000 investors — many of them French. The investors’ capital is protected in principle, but the process of reimbursement has been slow, with verification and recovery procedures expected to take several years. As a result, (somewhat inevitably) a campaign group has been established to fight the fight.
The case underlines that while Luxembourg’s system offers security of capital, it does not guarantee speed of access. In a liquidation, the process is thorough and methodical — an approach that prioritises protection over haste.
Sapin II
Another reason investors look to Luxembourg is the Sapin II law, enacted in France in 2016. This legislation allows the French state to temporarily suspend withdrawals from assurance vie policies during periods of financial instability. The dirigeste nature of the French State leads many to fear that is far from a remote possibility.
Luxembourg contracts, however, are not subject to this law — unless they include guaranteed ‘euro funds’ reinsured by French entities. In these cases, those specific guaranteed assets could, theoretically, fall under Sapin II restrictions.
Guaranteed euro funds — which protect capital and lock in annual gains — remain a key feature of many assurance vie contracts, but in practice, they tend to deliver modest long-term returns.
Many advisers suggest keeping exposure to guaranteed funds limited. Financial specialist Robert Kent, based in France, explains: “Guaranteed funds should be used strategically, not excessively. I typically recommend holding around three to five years of future income needs in a guaranteed fund. This offers a stable source of income, while keeping the majority of assets in the Luxembourg structure — beyond the reach of any potential French restrictions.”
Wise savers and investors would also probably do well to first fully utilise their Livret A and LDD savings accounts, obtainable through their bank. These provide tax-free, instant access to emergency cash — something even the best insurance contract cannot offer.
Luxembourg assurance vie contracts typically require higher minimum investments — often around €100,000 — and offer a wider range of investment options. The policies are best suited to affluent investors who understand investment risk and value cross-border flexibility over guaranteed returns.
However, as we have pointed out previously, management fees can exceed 1%, and capital guarantees are rare. As always, it pays to shop around, do the research and take time to make a decision.
