Assurance-vie is a long-term savings and investment contract which is hugely popular in France. The product is far more than standard life insurance - assurance décès - which merely provides a capital sum on death.
This month the French national auditor, the Cour de Comptes, released a report warning that the product’s highly favorable tax treatment now produces significant windfall effects, costing the State an estimated €12 billion each year. The institution argues that these advantages no longer align with the original purpose of encouraging long-term savings that support the real economy.
The authors state that over the past decades, life insurance has evolved into a major tool for tax optimisation, especially in estate planning. By way of an example, the reports states that a transmission of €5 million, the effective tax rate can fall to 2.1% when a life insurance contract is used in combination with other available tax breaks, against 39.3% if the transmission is done without these mechanisms.
Today, 30% of financial wealth transfers pass through life insurance contracts, largely because they offer a far more favorable inheritance regime than standard rules.
The €152,500 tax-free allowance per beneficiary on premiums paid before age 70 is one of the most powerful incentives, and for premiums paid after 70, only amounts exceeding €30,500 are taxable—and none of the capital gains are.
These features make life insurance particularly attractive for passing on assets, to the point that the auditor believes it has become a parallel inheritance system.
To address this distortion, the auditor calls for a broad reform of the inheritance framework applied to life insurance. This could include reducing or capping the generous €152,500 allowance, aligning life-insurance inheritance taxation more closely with standard estate-tax rules, and reconsidering the exemption of capital gains on premiums paid after 70, which it identifies as one of the most problematic sources of tax avoidance.
The auditors also insists that tax benefits should be more tightly linked to genuine long-term saving rather than short-term gains. Under current rules, a contract held for 8 years becomes eligible for annual exemptions of €4,600 (€9,200 for a couple) on gains, regardless of how the funds are invested. The institution suggests extending the required holding period, creating a more graduated system of incentives, or reserving the most favorable tax treatment for contracts that contribute to long-term financing of the economy.
Another major concern is that life insurance does not sufficiently channel savings toward productive investment. Despite a 35% increase in unit-linked products in recent years, 70% of assets remain invested in euro-denominated funds, which primarily hold low-risk bonds and contribute little to business financing. The auditors suggest revising tax incentives to make unit-linked products more appealing, improving fee transparency, and discouraging excessive reliance on guaranteed euro funds.
The report also stresses the need for greater consistency across the French savings landscape to reduce disparities and create a more coherent framework for savers, helping them diversify more effectively.
While the auditors’ recommendations are substantial, the prospect that they will be implemented in the short-term remain slim. The political risks are evident with the product owned by one-third of the French population. Nonetheless, the auditor argues that the current system, with its high fiscal cost and unequal distribution of benefits, is no longer sustainable. Modernising life insurance taxation would, in its view, restore fairness, improve economic efficiency, and better align the product with national policy objectives.
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