The expatriate worker, who is assigned from his company abroad temporarily, faces a different environment with changes in his professional and personal conditions that he has to take into account from the first day. First of all, we must take into account our starting point. Spain has one of the most complete and best protection regimes compared to the vast majority of countries in the world, so in many cases, we will find worse coverage. The second point is complementary protection. If life or accident insurance are always essential products, their need and coverage when we are away from home are even more so. And finally, do not forget the future. For some years, the expatriate worker has not been able to contribute to the Spanish Social Security, which creates a gap in contributions that can cause economic damage in the future due to a lower public pension.
For all these reasons, life insurance, with different purposes, becomes the main pension product for expatriate workers. We explain how:
Life-risk and accident insurance
If life insurance is always among the most important pension products since it guarantees to cover the economic needs of those we love most, the farther away it is, the more so. Life insurance, like the different options offered, guarantees a capital in the event of death to which additional coverage is added for the accident, Total or Absolute Permanent Disability, or Major Disability. Thanks to this, not only death is covered, but also the large expenses that give rise to a situation of disability.
Having improvements in the coverage of accidents, such as simultaneous accidental death, is also essential. Many times the risks for the expatriate worker are multiplied by their continuous displacements, for this reason, this type of guarantee is important.
If until now we have focused on present needs, now it is time to think about the future. Thanks to this product we can make contributions, often taking advantage of the fact that being an expatriate we have a higher salary and thus complement our retirement, without risk, with the capital guaranteed by adding the interest rate that this product remunerates. With this, we will achieve a guaranteed capital at retirement age with complimentary coverage for death and disability.
Thanks to this, the expatriate worker will have total coverage that allows him to face possible present problems but also protect his future.
How is life insurance taxed?
Although life insurance is a product that we can use in order to save or invest, the most general coverage is to cover the death or disability of the insured.
If death occurs, the income obtained must be taxed in the Inheritance Tax, which is transferred to each Autonomous Community. But if a disability occurs or in any case in which the policyholder who contracts and pays the insurance premium coincides (or the insured if the insurance is collective), and the beneficiary of the benefit has to do it for the Tax on the Personal Income Tax (IRPF). We explain the key points.
Life insurance and income tax
In the first place, although we have pointed out that disability, that is, when you receive this benefit as an insured person to cover this situation, is one of the clearest cases in which you have to pay personal income tax, this is not always the case. There is an exception, disability insurance whose beneficiary is the mortgagee.
It is a very common cause for many mortgage holders that at the time of contracting the loan with a mortgage guarantee on their home, they were also forced to take out eye med life insurance, with disability coverage in most cases, in favor of the financial entity to cover the outstanding debt. The changes in the new Mortgage Law that will be approved in 2018 put an end to this obligation, with the mortgagee being able to voluntarily subscribe to this insurance if the entity offers any consideration or improvement in conditions such as the interest rate.
Beyond this exception, if it is the policyholder who is going to receive the capital stipulated in the policy, he must declare it in the IRPF of the year in which he received this payment. For example, if he received it in 2017, in the income tax return for that year that can be filed from April 4 to July 2, 2018.
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The method of calculation is very simple, it will be done by the amount received, subtracting the premiums paid in that year.
Thus, for example, if you have received 60,000 euros and have paid 300 euros of premium in that year, you will have to declare a profit of 60,000 euros – 300 euros = 59,700 euros.
This return is considered real estate capital, so it will have to be taxed depending on its amount at different rates:
- The first 6,000 euros at 19%
- From 6,000.01 euros to 50,000 euros at 21%
- From 50,000.01 euros onwards to 23%
How much is paid to the Treasury if you collect the life insurance compensation?
If you collect life insurance you will have to pay a proportional part to the Treasury. The amount to pay will be proportional and will depend on the state in which you are. It will also vary if the amount of insurance is for disability or death.
The taxes that we must pay when collecting life insurance are not collected automatically but in the annual personal income tax.
For the collection of life insurance in cases of disability, a statement is made for income from movable capital. Treasury establishes the following sections:
- Up to €6,000 you must pay 19% in taxes
- From €6,000 to €50,000 you must pay 21% in taxes
- From €50,000 you must pay a 23% tax
For the collection of life insurance in the event of death, the options to be taken into account are different, since they focus on the beneficiary. This is applied by taking into account the age, relationship, or disability of the beneficiary.
Children are subject to a maximum tax reduction.
If the beneficiary has a disability of between 33% and 65%, an additional reduction is also applied.
In the event that the beneficiary has a disability of more than 65%, the maximum reduction is raised.
life insurance deductions
One of the advantages that we can find in life insurance is that, when making the annual income, our insurance is taxed between 19% and 23% depending on the amount paid.
Something to keep in mind is where you should deduct your life insurance when making the income statement. If you are the policyholder or the beneficiary, you can deduct life insurance in personal income tax, if not, you must do so as taxes and inheritance.
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