What is an life annuity and how does it work?

Family Care And Protection

The life annuity is a periodic income obtained against the transfer of capital to a third party (a bank or an insurance company). It is paid for the life of the annuitant, which gives it a certain analogy with a pension or with certain pensions for life.

Namely, the life annuity is, depending on the case, indexed or not on inflation

 What does life annuity cover?

The life annuity may have been taken out as part of a life insurance policy, a capitalization pension contract, or obtained through the sale of a building for life.

Regarding contracts, three types can be distinguished:

1/ Annuity contracts: This is an immediate or deferred life annuity (depending on the date of the first payment), open to all savers. Thus, in a deferred annuity contract, the annuity is paid only after a more or less long period, called the annuity constitution period or deferred. While the immediate life annuity necessarily begins with the payment of capital, the deferred life annuity can be subscribed by means of the payment of capital, or by means of the payment of periodic premiums during all or part of the duration of the deferred.

2/ Compulsory annuity contracts: These include, for example, the contract, for self-employed workers, the contract, for civil servants.

3/ Optional annuity contracts: This is a life insurance contract, a PEP, or a PEA, open to everyone. The life annuity may then be stipulated to be reversible for the benefit of the spouse or any other person: on your death, your annuity will then be paid to him until his own death, in full (100% reversion), or in part (100% reversion). 50%, 60%, or other).

 How is the life annuity calculated?

The amount of the annuity is calculated on your contract according to the amount of money you are willing to invest, the subscription fees, but also your current age and your age when the annuity will begin to be paid to you. . The annuity can begin to be paid immediately if your contract provides for it. The calculation takes into account your average statistical life expectancy. Thus, the earlier you start to receive the pension, the less important it is. The amount of your pension will be reviewed each year, automatically, according to a scale set by each finance law.

 Benefits of life annuity

The advantages of the life annuity are the tax deductibility of the premiums paid to constitute this annuity and the guarantee of resources whatever the duration of your life. You don’t know how long you’ll live, but you probably already have an idea of ​​the resources you’ll have in retirement. From now on, you can devote part of your income to the acquisition of a life annuity in anticipation of a drop in resources in 10, 20, or 30 years.

The life annuity can be universal: on your death, the initial capital of the annuity will be transferred to your heirs.

 Taxation of the life annuity

All life annuities, whatever their form or their origin, are, in principle, subject to income tax. It does not matter whether they are constituted on one or more heads, or with reserved or alienated capital, whether or not they are affected by an automatic variation clause.

 Example of life annuity

To cite just one example, illustrating the principle of the life annuity, we can speak of Jeanne Calment, dean of humanity, who had taken out a life annuity with her notary at the age of 90. When she died 32 years later, the property had been paid for at more than double its actual value, and the direct beneficiaries predeceased Ms. Calment.