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Felicity Lodge is a Grenoble-based financial planner with The Spectrum IFA Group, offering independent financial planning advice for expatriates in the Alps region. Here is her guide to life insurance in France.  

Benjamin Franklin said, “in this world nothing can be said to be certain, except death and taxes“.  

There is not a great deal you can do about either. Taxes have to be paid, although you can make sure that you are not paying more than you need to, and no matter how hard scientists try, death will come sooner or later. 

How long are you going to live for?  

Few people can confidently answer this question and the aim of financial planning is to have the means of providing for yourself and your family whatever happens. Very few people can say that they die at just the right time and the main situations we try to cover are that you die too early, which can leave your family with financial difficulties, or you die too late and run the risk of having to live on a reduced income. 

Both of these situations can be covered using different forms of life insurance. There are many forms of life insurance which can be confusing. The two most commonly used in France are assurance vie (life insurance bond) which is a long-term savings policy, and assurance décès (term life insurance) which provides payment in the case of death. By saving money now in an assurance vie, you can build up a lump sum for expected or unexpected expenses in the future, or to fund your retirement. By taking out assurance décès, you will pay a small monthly sum to the insurance company, who will then pay out a lump sum on the death of the insured. 

Assurance vie 

Many of you will have heard of assurance vie, however, most expats will not realise how widely used and tax-efficient these policies are in France.  It is a form of savings where you put money into the policy, then within the policy a number of different investments are available depending on the particular assurance vie you chose.  Many French people save for their retirement using an assurance vie rather than a personal pension because of its superior flexibility. Since you can take the proceeds at any age and maximum tax efficiency is after only eight years, an assurance vie can also be used to save for any future expenses such as university expenses, weddings, or even for the holiday of a lifetime. 

I have discussed the details of assurance vie in a little more detail in my article Arranging your finances in France – an overview but please feel free to contact me if you want any further information. 

Assurance décès 

Assurance décès (temporaire), which pays a lump sum upon the death of the insured, is a very valuable but much underused insurance. It is invaluable for people with young children, but for a number of reasons most families are under-insured and many families are at risk of financial hardship should the worst happen. For some people the death of a spouse is not something they like to think about, others do not like to pay for something they consider unlikely and sometimes people assume that they will be provided for by the state or by family. What you have to remember is that the monthly payment you make is usually relatively small compared to the benefit you receive should you have to claim and provides a huge peace of mind. 

This type of insurance will already be held by most of you with mortgages to cover all or part of the outstanding loan. You may also have a small amount provided by your employer, but you should bear in mind that this will cease when you stop working for that employer. Even if you already have these insurances, it is not usually enough to maintain your standard of living. 

To work out how much cover you need, you have to work out how much money you need to cover your living expenses (including holidays, future expenses such as education and any extras), and how much income you would have available (I can help you for no charge if you send me an email).  If you do this, remember the extra childcare costs. Many people forget to insure a non-working spouse because she does not have an income. In fact, if you were to have to pay someone to look after your children, clean your house and do your washing, particularly if you work long hours, there are significant costs involved!  Being an expat you would also have to consider whether you would want to return to your own country, which would incur further costs. 

Sometimes it is necessary to compromise between how much insurance you need and how much you can afford. Again, I can help you to find the best balance. 

Overview 

Assurance vie and assurance décès are essential financial planning tools, making sure your family is financially secure whatever happens. 

Assurance vie is a way of saving money for the future. It is very flexible and tax efficient and with the right policy you will have a lifelong structure to manage your investments, enabling you to tailor your portfolio as your circumstances evolve. 

Assurance décès is the one thing you pay for but hope you will never receive any benefit. Thankfully it is rare that you have to claim, but in the event that you do the benefit to your family is immense.

Felicity Lodge, based in Grenoble, is a financial planner with The Spectrum IFA Group. For a free, no-obligation consultation please contact felicity.lodge (at) spectrum-ifa.com.

Loving life with the kids

Felicity Lodge is a financial planner with The Spectrum IFA Group, offering independent financial planning advice for expatriates in France. Felicity is based in Grenoble and works with English speaking expats the Alps region.  Here is her guide to some of the personal finance considerations for those making the move to France.

Moving to a new country can be a stressful time – changing jobs, finding somewhere to live, moving schools – and all this in a foreign language. In the midst of all this, financial issues get overlooked. People often assume that because their savings and pensions are well arranged in their home country, they can leave things as they are when they are living in France. In fact, all countries have different tax systems and what is tax efficient in one country may not necessarily be as suitable when you become French resident.

A common way of saving in the UK is with an ISA. Whilst you can continue to hold (but not contribute to) existing ISAs if you are non-resident in the UK, many people do not realize that an ISA is not tax exempt in France and any interest, dividends and capital gains must be declared on your annual tax return. If you will be moving back to the UK it may be worth holding onto your ISAs anyway – this will depend on your personal circumstances. Another popular way of saving in the UK is with the Post Office through National Savings and Premium Bonds. These are also not tax exempt in France and any interest or winnings will be taxable (since you can get your money back, Premium Bonds, wins are considered as interest not as lottery winnings). Some people place their money in offshore banks thinking they will not have to pay tax, however, a French tax return requires you to declare all worldwide income, including interest, and all accounts. Paying withholding tax does not remove the obligation of disclosure.

Bank Savings Accounts

Luckily, as a French resident you have other options available – different but equally valuable. Your first stop will be your bank for savings accounts (compte epargne), specifically a Livret A and a Livret Development Durable (LDD). These should both be offered by your bank and allow you to save a significant amount without tax. However, the interest rates at the moment are not very enticing, so while these accounts are good for holding emergency funds or money you will need in the immediate future, in the long-term your savings run the risk of being depreciated by inflation.

People today are aware of the risk of loosing some of their savings if a bank collapses. France has a compensation scheme that covers up to 70,000 € of a depositor’s net deposits per banking group. The UK scheme covers £50,000 per banking group. People are less aware that the biggest threat to your savings is that the return may not keep pace with inflation, eroding purchasing power in real terms.

Long-Term Savings

For money that you have no plans for in the near-future you might want to have some exposure to bonds or shares, to try to improve long-term returns. The safest way to do this is by investing through funds, since this way you have the expertise of a fund manager and his team and also, since your money is pooled with that of many other investors, your money will be invested in a wider range of shares, which reduces risk compared to holding shares in a few individual companies.

There are two main ways to do this tax efficiently in France. The first is through a Plan Epargne Actions (PEA) which is an account in which you can hold shares and funds. There are tax advantages, but these are combined with restrictions. You can only hold funds or shares that are based in and invested in companies in the European Economic Area (EEA). This is quite a severe restriction and means that you cannot fully diversify and take advantages of growth in other parts of the world. In addition, you cannot continue to hold a PEA if you cease to be French resident.

An alternative and less restrictive option is to hold funds in a life insurance bond. A French approved life insurance bond (Assurance Vie) is similar to a PEA in that it is an account with tax advantages in which you can hold funds. Funds held in an Assurance Vie must be based in the EEA but can invest anywhere in the world. Assurance Vie policies are widely held by French people for long-term savings and to supplement retirement income, since personal pensions in France are not as developed as in the UK and have quite strict requirements on when and how you can take your money. An Assurance Vie is much more flexible: for full tax advantages you must hold the policy for eight years although you can continue to hold it for as long as you wish and you have access to your money at all times.

Holding your savings in an Assurance Vie offers a number of advantages, particularly in France where the tax treatment of an Assurance Vie is very favourable. No tax is due on any asset held within the Assurance Vie whilst it remains in the policy and funds can be bought and sold within the policy with no tax payable, which means that the policy grows tax free. Tax is only payable when money is withdrawn from the Assurance Vie, and this is at extremely beneficial rates after the policy has been held for eight years.

In addition, there are benefits with regard to succession. The policy can be left to whomever the holder wishes, currently with a considerable tax free allowance and a comparatively low rate on any excess. Holding assets together in an Assurance Vie also simplifies your paperwork, tax treatment and asset management. The policy can be kept if you leave France, in which case the tax regulations of your new country of residence will apply.

Assurance Vie policies are not all made equal. Those offered by your bank are often expensive and have little choice of what to invest in. Some are available online with very low charges and a wide range of funds (supports) offered, but for this route you must be comfortable with a DIY approach. If you consult a financial planner, they will be able to find the best policy to match your needs and help you tailor the investment to your risk profile and to changing personal circumstances as your life changes. An Assurance Vie can be a lifetime investment that evolves with you.

Mortgages

Buying a property in France is highly regulated.  The amount you can borrow is controlled so loan payments and any other regular obligations cannot be more than 33% of your monthly income (net of social charges). This amount must be sufficient to cover any existing financial commitments, your new mortgage payments and the associated life insurance cover (which French banks insist on). The same rule applies if you are renting accommodation. French people tend to use fixed rate mortgages, but other options are available and are becoming more common. Re-mortgaging is more difficult in France, so choosing the most suitable mortgage in the first place is essential.

Succession

Inheritance law in France is very different to in the UK and other countries. French succession law applies to properties in France, even if the owners are not French resident, and to worldwide assets if you are. Under French succession law you are not able to leave your assets to anyone you please. Protected heirs (usually your children) are entitled to a portion of your estate and you are not able to leave the total of your assets to anyone you please. Inheritance tax, especially for non-related beneficiaries, is severe.

If you have a complicated family situation or have a will that does not agree with French law, it is vital that you consult with a notaire and a financial planner.

If you have not yet moved to France, professional guidance is essential since there are tax advantages to making some arrangements before you are French resident. If you are already resident in France, trying to understand the details of your different options can be a nightmare, especially when everything is written in a language you do not fully understand. A financial planner can help you to work out the best route to achieving your personal and financial goals within the French system.

Felicity Lodge, based in Grenoble, is a financial planner with The Spectrum IFA Group. For a free, no-obligation consultation please contact felicity.lodge (at) spectrum-ifa.com