Don’t underestimate the usefulness of life insurance

Few Belgians take out insurance that would allow their loved ones to receive capital to preserve their standard of living following a death. The disappearance of one of the financial pillars of the family can however have very serious consequences.

Low risk, huge consequences

“Belgians focus mainly on the probability of a risk occurring rather than on its impact”, analyzes Bart Chiau, main expert of the insurer NN and professor at UGent. “The risk of having a car accident or being hospitalized is relatively high. While the risk of premature death is much lower in comparison, the Belgian assumes that it will not materialize and does not realize that the potential financial consequences are enormous.”

Risk management

Nicolas Cellières, founder and CEO of Optivy, systematically addresses the subject during financial planning. “In the ‘risk management’ section, the household budget balance is assessed in the event of the disappearance of each of the partners. We identify income and expenses (short, medium and long term) to draw up a table of cash flows, integrating the children’s studies, the purchase of a car, the layout of the house, etc. Goal: check whether the death generates a deficit, and in what proportion. We then add up the deficits, for the duration desired by the client (eg until his pension) to define the capital to be insured”, explains the financial planner.

“We add up the deficits generated by the death of a partner and then add them up over the desired duration to define a capital to be insured.”

Nicolas Cellieres

Financial planner (CEO of Optivy)

Making a diagnosis and providing a quantified evaluation is not necessarily enough to convince. “About a third of customers take out a policy”, notes Nicolas Cellières, recalling in passing that “the earlier you take out such insurance, and ideally when you are still in good health, the cheaper the premium”.

Some companies offer flexible plans that allow you to adjust the death capital as you wish, with constant, decreasing or even progressive capital formulas.

Be aware of the limitations provided by certain policies. “We do not choose the circumstances in which we will die. I would therefore recommend death cover for all causes”, explains Nicolas Cellières.

According to an estimate by the financial services comparator, for a death benefit guaranteed between 20,000 and 50,000 euros, the monthly premium amounts for an insured person to:
– 7 euros (under 30);
– 15 euros (between 40 and 50 years old);
– 11 euros (couple in their thirties);
– 25 euros (over 60 years old).

Cover inheritance tax

Death insurance can also cover inheritance tax or pay inheritance tax that would be due on an unregistered gift. “We make an estimate of inheritance rights on the basis of the inventory of assets and debts and a calculation of the tax burden per heir”, explains Nicolas Cellières. “Often, the surviving spouse will have to pay significant inheritance tax and the children will inherit bare ownership assets on which they are taxed, while they benefit from nothing until the death of the surviving spouse.”

Temporary death insurance for unregistered donations

If a movable gift has not been registered and the donee dies within 3 years (in Brussels and Flanders) or within 5 years (in Wallonia since 2022), the donee will have to pay much more inheritance tax higher than the gift taxes that have been evaded.

To cover your heirs against this risk, you can take out temporary death insurance. In the event of the death of the donor during the suspect period, the insurer will pay the heirs a capital which will allow them to pay the inheritance tax. “Death insurance coverage is generally more attractive than the payment of gift tax. It is therefore worth doing your calculations!”, says Nicolas Cellières.

An example (AG Insurance). Marc, who is approaching his fifties and who lives in the Walloon Region, donated 100,000 euros by bank transfer to his son Damien. Let’s compare three scenarios:

  • They record the donation. Cost : €3,300;
  • They don’t register the donation, but Damien takes out a death insurance on Marc’s head to cover the period of 5 years and therefore any inheritance tax (5,625 euros). Cost : 160 euros (single premium);
  • They don’t register the donation. If Marc dies within 3 years, Damien will have to pay 5,625 euros.

Particular attention should be paid to the structuring of the insurance contract. One of the partners is the insured, the other (survivor) is both policyholder and beneficiary. “In the case of a couple of de facto, legal cohabitants or spouses in separation of property, the stipulation for oneself does not pose any concern, because the capital will not enter the estate mass”.

Inheritance tax insurance allows you to buy time to delay your estate planning.

Nicolas Cellieres

Financial planner (CEO of Optivy)

“On the other hand, for people married under legal regime, ideally, the premium should be paid from the own heritage (funds held before marriage or from an inheritance) of the lessee. The easiest way is to pay single bonus for avoid having to trace the origin of the funds each time“.

For kids, the procedure is also more complex. “If we plan a contract in their name, sometimes you have to go through the justice of the peace. In general, we proceed to a prior donation to the children of the sum which will enable them to pay the premium“.

Inheritance tax insurance allows you to buy time to delay your estate planning, if we are too young to already make donations or if the children are too young to receive them”, concludes Nicolas Cellières.

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