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The Life sector consists in the operation of the following kinds of insurance and operations: Life Insurance, Marriage/Birth Insurance, Insurance connected to collective investment funds, capital redemption operations and pension funds.
Life insurance is an insurance policy taken out on the life of one or a number of insured persons, which guarantees, as its main cover, the risk of death or survival, or both. This cover can also be completed or complemented by a financial operation.
• If and when the beneficiary acquires the right to take the place of the policyholder.
• The contract should specify that written consent from the insured has been obtained if they are not the same person as the policyholder, unless the contract is intended to cover any liability of the policyholder with regard to the insured person.
• Written agreement of the insured person is also necessary to change the beneficiary of the policy.
• The contract should expressly indicate that the right of the policyholder or insured to change the beneficiary ceases at the moment when the latter acquires the right to receive the insured amounts.
• The contract should also indicate the existence of a table, attached to which will be the redemption and reduction amounts, calculated on a yearly basis at least, based on the number of years of duration of the contract and a reference amount regarding the value of the insured amounts (so that the policyholder or beneficiary are able to easily calculate the amounts corresponding to the specific case of the corresponding contract) whenever the contract contemplates such options.
• In the event of non-payment of the premium, and without prejudice to the agreement of conditions more favourable to the policyholder, the insurer may only terminate the contract when, following notification by registered letter with notification of delivery, the policyholder fails to make payment within the specified deadline. As this form of insurance is concerned with capital redemption rather than demographic risk, the consequence seems to be more a reduction of the insured amount, in proportion to and in accordance with the non-payment of the premium.
• Without prejudice to the agreement of conditions more favourable to the policyholder, in insurance contracts which contemplate redemption and/or reduction options, the policyholder only becomes entitled to such amounts after payment of the entire premium or, at the latest, after three yearly premiums.
• In the “in case of life” form, in which the guarantee applies during the lifetime of the insured, it is advisable to bear in mind the evolution of the contractually guaranteed amounts over time, given that inflation can result in a reduction of the actual value of the future guarantees initially contracted.
• In the event of death of the insured/policyholder, there will be no reimbursement of the amount paid and insured unless counter-insurance for reimbursement of premiums is held; a payment may occur in the event of a mixed contract (life and death mixed insurance).
• The option of regular payments instead of the full payout of the guaranteed amount should take into consideration the yield offered by the insurer. In the “in case of death” form, in which the guarantee is triggered after the insured person’s death, the policyholder may agree with the insurer at the time of signing of the contract whether, at the end of the same, the full amount or periodic payments are paid to the beneficiary.
• Joint life insurance, for 2 people, is sometimes advisable, as in the event of the death of one of them the insured amount is paid out to the beneficiary in full (example: if the beneficiary is the bank which granted a loan for the purchase of a home, the debt to the bank will be paid in full).
They are operations by means of which, in exchange for fixed payments, the insurer commits to pay the subscriber, or person legitimately entitled to the capital redemption, a previously agreed sum after a certain number of years, also agreed in advance. This capital (sum) may be determined on the basis of a “reference amount”. In capital redemption operations, the insurer may reduce the insured capital in proportion to amounts not paid. Generally, the subscriber only becomes entitled to the redemption and/or reduction amount after payment of the (single) payment or, at the latest, after two yearly payments.
Redemption of a Pension/Education Savings Plan is only possible in the circumstances provided for in Article 4 of Decree-Law 158/2002, of 2 July, i.e.:
a) After the age of sixty is reached or upon retirement by old age, by the participant or their spouse when, as a result of the marital property system used, the savings plan is a shared asset;
b) Long-term unemployment of the participant or any member of their household;
c) Permanent inability to work of the participant or any member of their household, whatever the cause;
d) Serious illness of the participant or any member of their household;
e) Attendance or enrolment of the participant or any member of their household in a vocational training or higher education course, if costs are incurred as a result in the corresponding year.
Redemption effected pursuant to items a) and e) may only take place with regard to payments for which at least five years have elapsed after the corresponding application dates, except when five years have elapsed following the first payment and the amount of the payments made in the first half of the contract term represents at least 35% of the total amount of payments, in which case the participant may demand redemption of the full amount of the savings plan.
This rule also applied to other redemption cases if the person upon whose personal circumstances the redemption request is based was already, at the date of each payment, in one of those situations. Redemption of a Retirement Savings Plan amount is subject to all these rules, except the possibility of redemption pursuant to item e). Redemption of an Education Savings Plan amount is subject to all these rules, except the possibility of redemption pursuant to item a).
It should be highlighted that in addition to the situations listed for redemption of Retirement, Education or Retirement/Education Savings Plans, redemption can also be requested at any time within the terms of the contract, albeit with the established fiscal penalties.
This refers to a situation in which the redemption is received in the form of capital; the amount corresponding to income (difference between the amount received and the payments made) is taxed in accordance with the rules applicable to Category E income, i.e. capital income, but only with regard to 1/5 of its value, at the independent rate of 20%, equal to an actual rate of 4% (Article 21, paragraph 3 of the Tax Benefits Statute).
In the event that redemption in the form of income payments is chosen, taxation of the amounts received will be subject to the rules applicable to pensions, i.e. Category H income (Article 21, paragraph 3 of the Tax Benefits Statute and Articles 53 and 54 of the Individual Income Tax Code).
As regards the taxation of income from life insurance and capital redemption operations received in life by the policyholder (positive difference between redemption payments, early payouts or maturity of insurance and operations in the life sector and the corresponding premiums paid or amounts invested), this income is classified as capital income (category E of the Individual Income Tax Code), and can, in accordance with article 5, paragraph 3 of the Individual Income Tax Code, providing the amount of the premiums, amounts or contributions paid in the first half of the contract term corresponds to at least 35% of the total capital invested, benefit from partial tax exemption in the following terms:
a) Taxation of an amount equal to 4/5 of the income, if the maturity, redemption, advance payout or other form of advance payment occurs after five years and before eight years of the contract term have elapsed, or
b) Taxation of an amount equal to 2/5 of the income, providing the maturity, redemption, advance payout or other form of advance payment occurs after eight years of the contract term have elapsed;
The income is taxed at the independent rate of 20%, though it may be combined with other income for tax purposes by choice of the recipients (Article 71, paragraph 3, item c) and paragraph 6, item d) of the Individual Income Tax Code).