Comment terminate your life insurance?

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In Summary

Closing a life insurance policy may seem complex, but understanding the different options and procedures makes the process easier. This article guides you through situations that lead to contract closure, when you can cancel it, the tax implications, and provides a cancellation letter template. Whether you consider full or partial redemption, you will find all the necessary information here to make an informed decision.

What causes the closure of a life insurance policy?

A life insurance contract can terminate in several ways, depending on circumstances and the policyholder’s choices. Here are the main situations that lead to the closure of a life insurance policy:

During the policy’s term

Once the contract reaches its maturity, the policyholder can choose between two options: a lump-sum payout or an annuity. The lump sum allows the policyholder to withdraw all savings at once, increased by earned interest. This option is often chosen to fund specific projects or to have a significant sum of money available at a certain time. The annuity, on the other hand, converts the accumulated capital into regular payments, typically monthly, thereby ensuring income for life. This option is often preferred to provide supplementary retirement income.

In case of death

Upon the insured’s death, usually that of the policyholder, the life insurance capital is transferred to the designated beneficiary(ies). The policy is then closed. Beneficiaries receive the saved amount, increased by any gains, under often favorable tax conditions. This transfer can be quick and free of excessive formalities, providing an effective solution to financially protect loved ones. The policyholder can modify the beneficiaries and how the capital is divided at any time during the contract’s life.

In case of survival or death

Some contracts include a clause known as “in case of survival or death.” This means the capital is paid either to the policyholder if still alive at the contract’s end or to their beneficiaries if they die before this date. This arrangement offers a double guarantee: accessible savings if needed and financial protection for beneficiaries in case of early death.

Automatic closure at maturity

Finally, some life insurance contracts reach their expiration date. At this time, the policyholder must decide whether to extend it, opt for a lump-sum payout, or convert the capital into a life annuity. The automatic closure at maturity means the contract ends, and the capital, with interest, is available to the policyholder.

For more details on the different ways to close a life insurance policy, you can consult the information available on the official Public Service.

These various situations show that life insurance is a flexible product adaptable to the policyholder’s needs, whether for short-term use or long-term planning.

When can you cancel a life insurance policy?

Unlike other insurance products, life insurance can be terminated at any time by the policyholder. There is no need to give prior notice, no maturity date to respect, nor any specific law to mention. This means you can close a life insurance policy without complex administrative constraints.

Full or partial redemption

You can proceed with a full redemption if you find a more profitable contract elsewhere or if the available investment portfolio is insufficient. Full redemption involves withdrawing all invested funds, ending the contract. Alternatively, a partial redemption can be done if liquidity is needed while keeping the contract active to benefit from long-term tax advantages.

Online cancellation

Since June 1, 2023, insurers offering contract signing via their website or mobile app are required to provide clients with direct access to the cancellation feature. This measure, often called “cancellation in 3 clicks,” aims to simplify the process and encourage contract changes to better meet policyholder needs. You can easily cancel your life insurance contract directly from your online customer space, making the process faster and more convenient.

Cooling-off period

Additionally, after your subscription, you have a 30-day cooling-off period following your first premium payment to withdraw. During this time, simply send a registered letter with acknowledgment of receipt to your insurer to cancel. The insurer must refund all amounts paid. This cooling-off period is designed to protect policyholders from impulsive decisions and allow them to think calmly after initial subscription.

Flexibility and availability

Contrary to what many savers believe, the capital is not blocked for 8 years. This 8-year duration mainly optimizes taxation on withdrawals. Since the money remains accessible, full or partial redemption can be made at any time based on financial needs or management preferences. Consulting an insurance expert can help you understand available options and choose the most beneficial strategy.

What is a full redemption of a life insurance policy?

In life insurance, beyond the withdrawal period, if you want to cancel your policy, you must proceed with a full redemption, which is equivalent to contract cancellation. Full redemption effectively terminates the contract permanently. Consequently, the fiscal benefits of the contract are lost, which can be disadvantageous, especially if it has been over 8 years. Transferring the capital to another life insurance contract is generally not possible, except in specific cases like the Fourgous amendment. For more information, see our article on insurance intermediaries.

Life insurance cancellation letter: downloadable template

The full redemption request process is very simple: just notify your insurer of your decision by registered letter with acknowledgment of receipt. To expedite the process, include with your request:

• A RIB.
• The latest account statement.
• A copy of your contract.

Sample life insurance cancellation letter

Subject: Request for full redemption of life insurance contract No. [Contract Number]

Dear Sir or Madam,

I am the holder of life insurance contract No. [Contract Number], subscribed on [Subscription Date], with your institution. I hereby inform you of my decision to proceed with the full redemption of this contract and, consequently, its cancellation.

Please send me the total amount due, including the invested capital and generated interest, via bank transfer to the account indicated in the attached RIB.

You will find the necessary documents for processing my request attached:

• The original of my life insurance contract
• A clear copy of my identity document
• A bank account statement (RIB)

I thank you in advance for confirming receipt of this request in writing and informing me of any further steps to be taken. In accordance with article L132-21 of the Insurance Code, I remind you that you have two months to process the transfer. After this period, the amounts due will accrue legal interest plus an additional 50%.

Yours sincerely,

[Your First Name and Last Name]
[Your Address]
[Your Phone Number]
[Your Email Address]

Signature

What is the taxation applied in the event of a life insurance policy cancellation?

When you proceed with a redemption (partial or full) on your life insurance contract, only interest are taxed, and the withdrawn capital portion is never taxed. The taxation applied depends on the date of premium payments and the duration of the contract’s retention. Here are the main rules to know:

Taxation of premiums paid before September 27, 2017

For the premiums paid on your contract before this pivotal date (and the introduction of Macron’s flat tax), you have the choice, regarding the taxation of interest, between:

1. Taxation under your income tax (based on your tax bracket): The interest is added to your other taxable income and taxed according to your marginal tax rate. This option may be advantageous if your rate is low.

2. The Flat-Rate Levy (PFL) which declines based on your contract’s age:

   • 35% for a contract less than 4 years old
   • 15% for a contract between 4 and 8 years
   • 7.5% for a contract over 8 years
   • To these rates, social contributions of 17.2% are added

Taxation of premiums paid after September 27, 2017

For premiums paid after September 27, 2017, Macron’s reform introduced the Flat Tax or Single Flat-Rate Levy (PFU):

1. Flat Tax (PFU): The overall rate is 30%, including 12.8% withholding tax and 17.2% social contributions. After 8 years, a rate of 7.5% applies to gains on contributions up to €150,000, and 12.8% beyond that, still with an additional 17.2% social contributions.

2. Taxation under your income tax: As with premiums paid before September 27, 2017, you can choose to include the interest in your taxable income. This option can be advantageous if your marginal tax rate is below the flat tax.

Tax allowances after 8 years

For contracts over 8 years, an annual allowance is applied on withdrawn interest. This allowance is:

• €4,600 for an individual
• €9,200 for a couple filing jointly

Social contributions

The social contributions at a rate of 17.2% are applied to generated interest. They are deducted annually from the euro funds and at redemption from unit-linked funds.

Exemption cases

In certain specific cases, you can be exempt from all taxation on interest:

• Economic layoff
• Early retirement
• Second or third category disability
• Judicial liquidation of your company or that of your spouse

To benefit from this exemption, the redemption must be made within the year following the event.

Can I cancel my life insurance without being taxed?

In some cases, the legislator has provided that you can proceed with a full redemption (or partial) on your life insurance without incurring any taxation, whether on the capital or the interest generated. If one of these events occurs (affecting you and/or your spouse), the redemption will be exempt: economic layoff, early retirement, second or third category disability, or judicial liquidation of your or your spouse’s company. The redemption must be carried out within the year following the event to benefit from this tax exemption.

Closure of a life insurance policy: are there fees?

Terminating your life insurance is completely free and allows you to recover the amount. The redemption value of your life insurance contract will be composed, at the time of withdrawal, of all premiums paid (by you) and the accrued interest, minus the life insurance fees deducted by the insurer. This amount changes each year, depending on the interest or gains realized on your contract.

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