PEA or life insurance: what to choose?

The first thing you need to do to invest in the stock market, is to open an account in order to buy, sell and “store” the shares, obligations or ETF . There are a plethora of possibilities, both in terms of the type of account and the institution with which to open it. The simplest form is the ordinary securities account (CTO). It opens easily, is simple and is subject to the “flat tax” of 30% on capital gains. This tax was created with the 2019 Pact law and is more favorable than income tax.

However, there are other envelopes that are much more attractive fiscally: the business savings plan (PEA) and Life Insurance (VA). The question that everyone is asking is going to be: Life insurance or PEA, what to choose? Let's see which of these two types of accounts is the most interesting for your investments.

Investment goals

Life insurance

• Designed to transmit its assets with advantageous taxation.
• Contrary to what its name may indicate, VA is not simply an insurance contract but a financial investment vehicle.

PEA

• Designed for people who want to increase their wealth.

Winner: Life insurance or PEA, both do the trick! If you are under 40, PEA is often the best solution. In both cases, a long-term investment will allow you to take advantage of compound interest.

Investment flexibility

Life insurance

• 8 years before being able to withdraw money.
• No payment limit.

PEA

• 5 years before being able to be exempt from capital gains tax.
• Limits payments to €150,000. You can increase the ceiling by also opening a PEA-PME (ceiling of €75K per person)

Winner: The savings plan in action. Despite the small downside on the payment limits, the PEA remains more practical. Coupled with the PEA-PME, the payment limit is €225,000 in payments per person, which leaves room for margin. Life insurance or PEA, there is no photo.

Investment universe

Life insurance

• Multi-support life insurance allows you to invest in all types of assets (shares listed companies, bonds, Real estate ETF, commodities, private equity...). Note that investments are made via units of account (UAs) whose share changes according to the stock markets and which include management fees.
• Access to euro funds with a guaranteed return of around 2%,
• No geographic restrictions.

PEA

• Requires investing in European equities, and prohibits structured products (which is not a bad thing).
• ETFs must be composed of at least 75% of European shares. Many ETFs bypass this rule and use derivatives (synthetic swaps) to allow holders of savings plans in action to invest in the S&P 500 or Nasdaq.

PEA or multi-support life insurance, find out what the bank or your wealth management advisor Whom do you want to open your account with. Very often, they only offer their home ETFs to earn more money, which can be a problem if you are looking to invest in a specific ETF or fund.

Winner: Life insurance

Life insurance taxation

Each medium has a tax advantage after a certain period of ownership. Note that it may be interesting to go through the wealth management to manage everything related to the taxation of your investments.

Life insurance

Withdrawal before 8 years:

• Flat rate 30%
• Partial or total withdrawals result in the closure of the plan. There are exceptional cases such as PACS, the creation of a business or a dismissal,

Withdrawal after 8 years

• Share of the capital < 150,000 Euros: flat tax 24.5%
• Share of capital > 150,000 Euros: Flat tax at 30%.

PEA

• Withdrawal before 5 years of ownership: flat tax at 30%.
• Withdrawal after 5 years of ownership: capital gains are tax exempt. You only pay social security contributions at 17.2%.

Winner: The tax advantage of a PEA is considerable: you only need to keep it for 5 years to take advantage of it. Note that some devices such as the Industrial girardin can be an interesting way to reduce your income tax.

Balance of the races of the match PEA or life insurance

PEA is our favorite in this match. Life insurance makes it possible to invest in more vehicles with no limit on payments, but PEA remains much simpler and more advantageous from a fiscal point of view. Even if your final capital is several million, you are exempt from tax on the whole, unlike life insurance, which is limited to 150,000 exempt Euros.

Our preference is therefore for a PEA which will mainly consist of ETFs, life insurance for the euro fund as well as a securities account for investments in US equities. PEA is also one of the favorite envelopes of the French.