The duration of this insrance is most often one year, renewable tacitly. There are also contracts whose guarantees are valid for five years, also renewable. In this sense, term death insurance differs from whole life death insurance, which has a lifetime duration and pays a lump sum to the beneficiaries regardless of the date of death.
What does term life insurance cover?
As its title suggests, term death insurance mainly covers the risk of death. A capital is provisioned in order to compensate for the loss of income and to maintain the household’s standard of living.
According to insurers, contracts can cover all causes of death or only the accidental death of the subscriber. In addition, they generally cover the risk of total disability in the event of illness or non-occupational accident, with the payment of an annuity.
What happens when a term life insurance policy expires?
With term life insurance, the guarantee comes into play only if the risk occurs during a specific period. If the insured is still alive when the contract expires and no covered risk has arisen, the contract ends and the capital accumulated, via the payment of your contributions, is retained by the insurer. Contributions are not refunded.
This is why we speak of non-refundable contributions . On the other hand, the guarantees of a term death insurance are generally less expensive than those of a whole life death insurance.
Term life insurance: a contract with advantageous taxation
Term death insurance benefits from the same advantageous tax regime as life insurance in the event of death. The death benefit does not form part of the estate of the deceased. If it is paid to your spouse or partner bound by PACS, it is entirely exempt from inheritance tax. If you designate another beneficiary, the tax benefit depends on the age of payment of your premiums:
- Before age 70, your premiums paid benefit from a reduction of €152,500 per beneficiary,
- After age 70, an overall reduction of €30,500 is applied to all of your premiums paid on an insurance contract.
In fact, the death benefit paid to relatives is most of the time exempt from inheritance tax.