Luxembourg life insurance and expatriation

Luxembourg Life Insurance for Expats

For expatriates, taking out a Luxembourg life insurance policy is an excellent financial investment. There are several reasons for this.

First, Luxembourg life insurance offers financial diversification with attractive returns.

Furthermore, Luxembourg life insurance provides a high level of financial security. In exchange for premium payments, it offers a capital accumulation vehicle that can be used in the event of the policyholder’s survival or death.

Furthermore, this policy operates within a particularly advantageous civil and tax framework. It offers tax neutrality and security regarding the assets held.

Luxembourg life insurance is particularly advantageous for expatriates and a mobile international clientele.

In fact, many French savers have turned to Luxembourg life insurance in recent months, leading to a significant increase in capital inflows. This trend stems from the desire to benefit from a stable legal framework and enhanced protection for their capital, while keeping in mind that taxation always depends on each policyholder’s country of tax residence.

What is Luxembourg life insurance?

A traditional life insurance policy, but not just that…

At first glance, Luxembourg life insurance appears to be a completely traditional life insurance policy, offering great investment flexibility. However, under Luxembourg law, the policyholder of a life insurance policy benefits from the “Security Triangle” and a “Superprivilege.”

Premium Payments

The policyholder agrees to pay premiums regularly (or a single premium upon opening the policy). It is also possible to make additional payments. Premiums will be invested in financial, monetary, bond, or equity instruments, depending on the chosen risk profile and expected return.

Please note that subscription and management fees are applied to the amounts invested.

Maturity of the life insurance policy

The policy is taken out for a fixed term, determined at the time of purchase. However, the policyholder may withdraw funds at any time. Currently, no penalty is applied for withdrawals made before the scheduled maturity date. The policyholder recovers their funds valued at the time of withdrawal.

If the policyholder is alive when the policy matures, the life insurance policy provides for the payment of a lump sum or an annuity.

Upon retirement, the policyholder may opt to receive regular income. It should be noted, however, that if payments are made in the form of an annuity, the guarantee of transferring the lump sum to the beneficiaries is waived.

In the event of the policyholder’s death, the beneficiaries designated in the policy receive the lump sum amount, free of estate taxes.

The advantages of Luxembourg life insurance policies

Safety Triangle for life insurance policies

The so-called “Safety Triangle” system is designed to protect the policyholder of a life insurance policy. Indeed, Luxembourg life insurance policies are not included in the balance sheet of the insurance company with which they are purchased.

Life insurance policies are registered with an independent custodian approved by the Insurance Supervisory Authority (CAA). The CAA exercises oversight to ensure a balance between technical reserves and underlying assets.
More specifically, the funds saved under a Luxembourg life insurance policy are separate from those of the insurance company’s shareholders and creditors. Clients’ assets are thus protected.

Super-Privilege for Life Insurance Policyholders

Furthermore, in the event of the insurance company’s bankruptcy, the policyholder of a Luxembourg life insurance policy holds a “Super-Privilege.” They are a first-ranking creditor with respect to the assets regulated by the CAA. And this super-privilege takes precedence over other creditors, including public ones! The policyholder is therefore certain to recover their financial assets.

Furthermore, unlike in other countries, such as France for example, the guarantee is unlimited.

Tax Neutrality of Luxembourg Life Insurance

Furthermore, one of the key features of a Luxembourg life insurance policy is its tax neutrality. It adapts to the policyholder’s country of residence and/or nationality.

This is why life insurance offers several major advantages for expatriates and geographically mobile individuals. This is especially true when they regularly change their country of residence due to job transfers.

Due to the tax neutrality of life insurance, Luxembourg does not tax either the premiums or the capital gains realized upon surrender or maturity of the policy.

Depending on your country of residence, your life insurance policy can thus provide you with a higher net return after taxes.

In addition, you can deduct premiums paid into a life insurance policy from your taxable income. More information here.