Life insurance policies, tax benefits at risk
With sentence no. 10333/2018 the Italian Supreme Court (Corte di Cassazione) reiterated, recalling its previous intervention (judgment no. 6061/2012) that the life policies are to be considered such only if they guarantee the return of the capital at maturity, otherwise they are considered as ordinary investment contracts.
The Court specified that life insurance policy should be identified as the one in which the insured person’s risk is assumed by the insurer. On the contrary, when the performance risk is ascribed to the insured, the policy is deemed as a financial investment contract.
The retraining of an insurance policy into a mere financial product involves various effects both in the tax area and in the field of succession and asset protection.
In fact, when the product is qualified as a life insurance policy, it is possible to benefit from the so-called “tax deferral”, thanks to which the tax is deferred only at the time of the total or partial release of the policy. On the other hand, when the product is qualified as a financial investment, the income is taxed on a yearly basis when the capital gain is realized.
Moreover, in relation to indirect taxes, Article 12, paragraph 1, letter c) of the Legislative Decree 31st October 1990, n.346, provides for the exclusion from the formation of the inherited assets of the sums paid to the heirs by virtue of social security insurance. Consequently, from the inheritance law point of view, these indemnities would not fall within the assets of the deceased.
It is therefore evident that both from a tax and a succession standpoint, a possible retraining of a life insurance policy in a financial product could entail significant implications for the insured person.
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