Life insurance and tax return
life insuranceThe first types of life insurance that benefited from tax deductions (pay attention to the difference between deductibility and deductibility) were those that foresaw the constitution of an annuity; generally they were structured on the basis of a mixed criterion, a part of the periodical payments was used for the creation of the capital sum which was used to determine the subsequent annuity; another part was used for the coverage of the case of death and was lost in the event that the event did not occur during the period of duration of the policy.
Life insurance policies with these purposes that were stipulated before 31 December 2000 still enjoy the possibility of tax deduction; this must be requested every year based on the amounts that have been paid in the fiscal year concerned; it is necessary that the insurance company certifies that the payments have actually been made.
Those who have underwritten a life insurance policy may deduct 19% of the amount paid in insurance premiums. The maximum limit is set at 530 euros; this means that it will be possible to deduct up to 100.70 euros from the taxable amount subject to taxation each year. However, it should be noted that the tax relief is recognized only if certain conditions are met.
As far as tax deductibility is concerned, a distinction must be made between insurance contracts stipulated before 2001 and those stipulated afterwards.
As far as life insurance stipulated before 2001 is concerned, insurance contracts which meet the following conditions are entitled to the tax deduction:
Minimum duration of at least 5 years from the stipulation of the insurance contract;
No possibility of financing during the first 5 years of the contract.
In order to ascertain these conditions, it is necessary to view the contract or obtain a special declaration from the insurance company.
On the other hand, as far as life insurance policies underwritten after 2001 are concerned, it is possible to benefit from tax deductions only in the case of insurance contracts which provide for one of the following risks permanent invalidity: the latter must not be less than 5%, whatever the cause, accident or illness;
lack of self-sufficiency in the execution of daily tasks such as: performance of physiological functions, walking, food intake and proper personal hygiene;
Death.
Normally, the tax deduction is recognized in the case in which the expenses are incurred by the declarant for his own interest, however, it is also allowed to deduct premiums paid in the interest of dependent family members, provided that the total amount does not exceed 530 euros.
In recent years, the so-called linked life policies (unit linked and index linked) have become more widespread, i.e. contracts linked to some financial instrument of a speculative nature able to offer, over time, greater earning opportunities; in fact, these are real forms of investment that exploit the form of insurance for some of its advantages (in addition to not being included in the inheritance, these policies are seizable and cannot be seized).
Life insurance: psychological aspects
life insuranceLife insurance is a classic case in which the economy merges intimately with the psychology of the subject.
A few years ago it was pointed out to me, while I was talking about optimal investment plans, that I had not considered the concept of insurance on the future in the optimal investment plans at all. I was then asked a very direct question: “a person who is of a certain age (let’s say 50), with a wife and perhaps young children as dependents, why should he not provide for the diversion of a portion of his assets to a form of insurance that would cover the family from a misfortune that touches the policyholder?”
In reality, this understandable concern clashes with some simple considerations which, rather than economics, belong to logic. We will see that the use of But what if… allows anyone to turn up their nose at the above question.
Life insurance is based on mortality tables that describe the population as it ages. Typically, we start with a population of 100,000 subjects; at age 50, 91,822 remained alive (on average, of course); at age 51, 91,232 remained alive; and so on.
