The benefits of taking out life insurance in Luxembourg

What is life insurance?

In Luxembourg, life insurance is a financial investment.

When you take out a life insurance policy, you agree to pay premiums to an insurance company. Depending on the policy, these premiums may be fixed or variable. They may or may not be regular.

In certain cases, it’s also possible to make additional payments as you see fit. The insurer undertakes to pay a lump sum to the beneficiary of the policy upon the death of the policyholder.

As such, life insurance policies always involve the following parties:

• the insurer, i.e. the insurance company;
• the policyholder, i.e. the natural person or legal entity taking out the policy and paying the premiums;
• the insured party, i.e. the person to whom the event may occur;
• the beneficiary or beneficiaries, i.e. the person or people who will receive the amount specified in the policy upon the death of the insured party (a child, spouse or any other person).

Good to know

The policyholder, the insured party and the beneficiary may be the same person, but this isn’t necessarily the case.

Who can take out life insurance?

Life insurance is open to all investors. Different policies require the investor to make a smaller or larger initial payment and set the minimum premium (determined in advance) at differing levels.

What are the main benefits of life insurance?

Life insurance is a multi-purpose tool. Depending on the policy, it can be used to:

• diversify your portfolio in a flexible way, by tailoring your investment profile to your financial goals;
• build your savings gradually over the medium or long term;
• benefit from death cover;
• protect your loved ones through estate planning by freely choosing who the pay-out would go to in the event of your death;
• secure a mortgage in Luxembourg.

What are the tax benefits of life insurance?

Life insurance is also tax deductible, in that it helps you to reduce your tax bill at the end of the year.

If you are a Luxembourg resident or a cross-border worker who pays taxes in Luxembourg, you can deduct the premiums paid on a life insurance policy from your taxable base.

The amount of tax relief you will receive depends on your family situation.

Maximum tax-deductible amounts under a life insurance policy (cap applicable to the sum of all insurance premiums and debit interest paid):
 

Is life insurance a risky investment?

Luxembourg life insurance also has the advantage of being extremely secure. In fact, Luxembourg’s strict regulatory framework makes it unique in Europe.

If an insurance company files for bankruptcy, policyholders enjoy what is known as a super-privilege, meaning that they are viewed as creditors with a first-ranking claim and recover their life insurance policy amount ahead of other creditors.

Moreover, all policyholder assets must be held by an independent custodian bank, approved and monitored by the Luxembourg insurance regulator (Commissariat aux Assurances).

What are the constraints on life insurance?

To enjoy the tax benefits of life insurance, your policy must be in place for a minimum of 10 years. So, it’s a good idea to keep it for at least this length of time.

Should you need to, you can ask to redeem your policy at any time. However, it’s important to bear in mind that there may be fees to pay upon redemption. This may also have negative consequences for your taxes or for the performance or capital guarantee of your policy.