It is extremely important to understand how the taxation of life risk, accident, and savings insurance works, to know how the compensation received will be taxed. In private insurance, you will be taxed in one way or another, based on who we reflect as Policyholder and Beneficiary, or depending on how we collect the benefit (in the form of capital or income ). In collective insurance it will influence if there is a commitment for pensions and allocation of premiums:
PRIVATE INSURANCE
TAXATION OF DEATH IN LIFE INSURANCE RISK, ACCIDENTS, AND SAVINGS
Policyholder = Beneficiary: Pays personal income tax, exactly by Return on Movable Capital, which today means that if the amount received is less than €6,000, 19% is withheld, if the amount received is between €6,001 and €50,000, 21% is withheld, and finally if the amount received is greater than €50,001, 23% is withheld.
If it is collected in the form of capital (if the contracted product allows it), the difference between the capital received and all the premiums paid corresponding to the year in which the benefit is compensated will be considered yield.
Policyholder and Beneficiary (different): Taxed by ISD (Inheritance and Gift Tax), exactly by Inheritance.
A special case is made up of death benefits paid from the community property when the beneficiary is the spouse of the deceased policyholder. In this case, half of the benefit is settled by Personal Income Tax and the other half by Inheritance.
At the national level, there are reductions/bonuses for the type of relationship between the insured and the beneficiary.
TAXATION OF DISABILITY AND DIAGNOSIS OF SERIOUS ILLNESSES IN LIFE INSURANCE RISK+ACCIDENTS AND SURVIVAL IN SAVINGS INSURANCE
Policyholder = Beneficiary: The same as in death, is taxed by personal income tax, as Movable Capital Yield.
If it is collected in the form of capital (if the contracted product allows it), the difference between the capital received and all the premiums paid corresponding to the year in which the benefit is compensated will be considered yield.
Policyholder and Beneficiary (different): Taxed by ISD, but in this case by Donations.
If the Insurance Entity is a Mutual Insurance Company (MPS) and the Eye Med insurance is contracted by a Self-Employed, both death and disability will be taxed by IRPF, but as Earnings from Work. On the other hand, say that the contributions/insurance premiums made by the self-employed person can be deducted/reduced from personal income tax.
The taxation of the benefits will be for Income from work, whether or not the premiums are deducted.
HOW IS TAXED IF THE BANK IS THE BENEFICIARY IN CASE OF DEATH AND DISABILITY DUE TO A MORTGAGE LOAN?
If it is a disability benefit, IRPF regulations require that the same treatment be applied as if the beneficiary had been the mortgage debtor. For this reason, the mortgage holder/debtor will obtain a return on movable capital that will form part of the savings income.
However, in order not to distort the purpose of the operation (cancellation of the mortgage), this yield is not subject to withholding, which means that the policyholder must pay the full tax at the time of the declaration.
In the case of death benefits, when mortgage debt is canceled, it is not taxed.
Only the heirs would be taxed if there was a surplus. We recommend reflecting in the policy the nuance that the beneficiary is the bank for the “debt pending amortization”, and as the 2nd beneficiary, reflect “spouse and children in equal parts”, who will be taxed by Inheritance Tax, this being the best formula to minimize the fiscal impact, by distributing among several, because in the future we will not know if they will reduce or eliminate the current reductions and bonuses according to each Autonomous Community.
PRACTICAL EXAMPLES
EXAMPLE A
Compensation of life insurance for death where the policyholder and insured are the same people and the beneficiary is the spouse of the latter. The residence of both Valencia. The insured capital amounts to €100,000.
As the beneficiary resides in the Valencian Community and is the spouse of the insured, there is a reduction of €100,000 in the tax base, so the spouse will be exempt from paying taxes.
In the case of being a couple, but not being spouses, there is no reduction in kinship.
EXAMPLE B
Compensation of life insurance for disability where the Policyholder, Beneficiary, and Insured, are the same person. The insured capital amounts to €100,000, and the premiums paid in the year in which the benefit is received amount to €245. For what is considered yield for the calculation €100,000 – €245 = €99,755
The beneficiary must pay taxes for Income from Movable Capital an amount of €21,823.21 after applying the corresponding % of taxation in each bracket:
- The first €6,000 is taxed at 19%, in this case, €1,140.
- The section from €6,001 to €50,000 is taxed at 21%, in this case, €9,239.79.
- From €50,001 onwards, they are taxed at 23%, in this case, €11,443.42
Remaining a final compensation of €78,176.79 (€100,000 – €21,823.21).
EXAMPLE C
Compensation of life insurance for death where the policyholder and the insured are the same people, in this case, self-employed and the beneficiary is the spouse of the latter. The insurance is contracted with an MPS (Mutua de Previsión Social). The insured capital amounts to €100,000.
The beneficiary must pay taxes on Earnings from Work, increasing the taxable base of this tax by €100,000, together with other concepts such as rental income, salaries, or pensions.
EXAMPLE D
The policyholder and insured person of a Unit Linked resident in Valencia dies and the €100,000 saved on the product is collected by their spouse, for which they are exempt from paying taxes since the first €100,000 is not subject to inheritance tax in the Valencian Community for first-degree blood relatives.
