Everything You Need to Know About the Beneficiary Clause of a Life Insurance Policy

What is the beneficiary clause in a life insurance policy?

The beneficiary clause of a life insurance policy is a provision included in every policy that ensures the proper designation of individuals to receive funds upon the insured's death. It is essential for transferring the capital according to the policyholder's expressed wishes. There is considerable freedom in choosing beneficiaries, without age restrictions. The named individuals can be changed by the insured at any time, for instance, following a divorce.

By default, a life insurance policy includes a standard (or default) clause to designate beneficiaries in the event of death. The standard clause provides for the capital to be paid to legal heirs, such as spouses or children. However, the insured can choose a different option by opting for a custom clause. This allows for the free designation of beneficiaries, without requiring any family ties. The only limitation is that these beneficiaries cannot be individuals who might exert influence over the insured (such as medical professionals, legal representatives, or clergy members).

It is also possible to draft a split beneficiary clause to conduct a two-stage transfer of capital. This solution permits the distribution of funds over two generations, benefiting the spouse initially, then the children later.

The issue of life insurance beneficiaries arises when subscribing to each policy. To prevent any issues in this area, it is crucial for beneficiaries to be clearly designated in advance.

By signing a life insurance policy with an industry expert like Malakoff Humanis, advisors can assist you in person, by phone, or online. They can help you designate your beneficiaries and ensure they benefit from the capital generated in the event of death.

What steps should beneficiaries take?

The transfer of capital under the beneficiary clause requires clear and precise wording to identify the beneficiaries without any possible error. It is therefore recommended to designate each person by their full name, date and place of birth, and address.

To prevent the contract from becoming non-transferable, it is useful to add secondary beneficiaries or mention a payment to heirs, whoever they may be, in case all beneficiaries are deceased. Their designation can be made at the time of the contract subscription, through an amendment, or by will (indicating the life insurance policy reference).

Upon the policyholder's death, the law mandates insurers to actively search for any living beneficiaries, under the supervision of the Prudential Supervision and Resolution Authority (ACPR). Verifying the beneficiary's designation involves providing several documents to the insurer, such as identification, an inheritance certificate, a notoriety act, a letter of acceptance from the life insurance beneficiary, and a certificate of payment or exemption from transfer duties.

The insurer then proceeds to pay each beneficiary their share of the capital within a month after receiving the documents. In case of payment delay, interest is provided for the beneficiaries. A financial advisor may be contacted to assist them in managing the amount received.

Tax Implications of a Life Insurance Policy Beneficiary Clause

One of the major advantages of transferring capital generated by a life insurance policy lies in the associated tax benefits. The legal framework for distributing accumulated funds differs from that applied to a traditional inheritance.

Favorable taxation is offered for premiums paid before the age of 70. Amounts can be transferred to beneficiaries with an exemption from inheritance tax up to €152,500 per person. Social security contributions do not apply to death benefits paid to beneficiaries. For premiums paid after the age of 70, a global exemption up to €30,500 for all beneficiaries is available.

Upon the policyholder's death, the capital can also be paid to a legal entity, such as an association, if this is the deceased's wish.