A life insurance policy is a contract based on the life of a person. It involves several parties:
- the insurer: who offers the policy and must pay out the value of the policy when it terminates or the insured person dies;
- the policyholder: the person who takes out the policy and pays the premium;
- the insured: the person on whose life the policy is based and on whose death the policy ends;
- the beneficiary: the person who receive the value of the policy when the insured dies or the policy ends.
The premium is paid by the policyholder. Depending on the choices offered by the insurance company, the premium may be paid in one of two ways:
- as a single premium at the start of the policy;
- as regular annual or monthly premiums, the frequency and amount of which are determined with the insurer when the policy is taken out.
When taking out the policy the policyholder fills in an “investor profile” questionnaire in order to determine the level of risk he is prepared to accept.
Depending on the result, the policyholder then has the choice between different funds in which the premium will be invested. These funds may be:
- guaranteed rate funds; or
- funds quoted on stock markets, the returns of which may go up as well as down.
The policyholder also chooses the beneficiary/ies of the policy, i.e. the person or persons to whom the value of the policy will be paid when the insured person dies.
Depending on the alternatives offered by the insurance company, the policyholder may, during the life of the policy:
- make additional payments on his policy;
- make surrenders, i.e. may withdraw part of the sum invested if he needs cash;
- change the funds if there is a change in his risk profile;
- change the beneficiary selected when the policy was taken out.
Life insurance policies are an extremely flexible products, which enable you:
- to pass on capital to your family and friends;
- to access to your assets, at any time, by making a surrender, if necessary;
- to build up a lump sum with which to fund your projects (housing, retirement, etc.);
- to make payments at any time;
- to diversify your investments.
Premiums paid under a life insurance contract benefit from tax deductions under certain conditions.
- Maximum deductible limits for premiums paid for life insurance contracts under article 111LIR.
| Taxpayer | Without spouse | With spouse |
| Without children |
672 euros |
1,344 euros |
| With 1 child |
1,344 euros |
2,016 euros |
| With 2 children |
2,016 euros |
2,688 euros |
| With 1 children |
2.688 euros |
3.360 euros |
| For each additional child |
+ 672 euros |
+ 672 euros |
- Maximum deductible limit for premiums paid for life insurance policies covered by article 111bis LIR: €3,200 per year and per taxpayer.
For Luxembourg residents, life insurance is a particularly attractive estate planning tool. Death benefits paid to the beneficiaries of a life insurance policy are not subject to inheritance tax for direct line beneficiaries (spouse, children, parents). This makes it an effective mechanism for passing on assets without increasing the tax burden on heirs.
Prepare for your retirement with peace of mind and benefit from immediate tax deductions.
Finance your children's studies or projects with a savings life insurance policy.
Build your financial future by protecting your loved ones.
Life insurance and death insurance, although often mistaken for one another, serve different purposes. Life insurance is first and foremost a savings product, enabling you to build up capital for future projects or to supplement your pension. This capital can be passed on to the designated beneficiaries, providing an advantageous way of passing on assets.
Death insurance, on the other hand, is a form of provident insurance. Its main aim is to provide financial protection for the policyholder's next of kin in the event of death. This protection takes the form of a lump sum or annuity paid to the beneficiaries, guaranteeing immediate financial support.
In Luxembourg, there is no statutory maximum amount for premiums paid into a life insurance policy. So, in theory, you can invest unlimited amounts. However, each insurance company may set its own limits, particularly as regards minimum premiums or specific conditions for very large amounts.
There are, however, limits on the tax benefits associated with life insurance, such as tax deductions on premiums paid. For example, premiums paid into a life insurance policy may be deductible up to a certain annual limit. This limit may vary depending on your family situation.
We recommend that you consult your insurance company or agent for precise details tailored to your situation.
Text originally published in May 2021 and updated in October 2024.