Life Insurance: How to Turn Your Savings Into a Steady Income Through Scheduled Redemptions

Flexible, accessible, and tax-advantaged, life insurance isn’t just for saving. When used properly, it can become a source of supplemental income through scheduled withdrawals. It is a tool particularly well-suited for retirement, provided you understand a few key rules.

Life insurance remains the preferred investment of the French, with assets under management exceeding 2,100 billion euros in early 2026, according to France Assureurs. However, many savers take advantage of only one aspect of this product: building up capital. Yet life insurance offers a second, lesser-known but equally powerful use: generating regular income without terminating the policy. This is precisely the purpose of scheduled withdrawals.
 

The principle is simple. A partial withdrawal involves withdrawing a portion of the savings while keeping the contract open. The money that is not withdrawn continues to earn interest, and the contract retains its tax seniority—a key point, since it is the contract’s opening date, not the date of the contributions, that determines the applicable tax treatment. 

By automating these withdrawals at regular intervals—monthly or quarterly—the saver establishes a predictable stream of income, similar to a supplemental pension. The process is set up directly with the insurer or bank: the saver chooses the amount, frequency, and investment vehicles from which the withdrawals will be taken—secure euro-denominated funds, unit-linked funds, or a proportion of the entire portfolio. Payment processing typically takes a few days.
 

A Tax Structure Tailored for Regular Withdrawals
The major advantage of scheduled redemptions lies in their tax treatment. When a withdrawal is made, the tax is never levied on the entire amount received. Only the portion corresponding to gains is taxable; the initial principal is returned tax-free. The calculation formula is straightforward: the taxable portion of a withdrawal is equal to the amount withdrawn multiplied by the ratio of the contract’s total capital gains to its total value. For a contract in which one-third of the value consists of gains, a withdrawal of 3,000 euros therefore generates only 1,000 euros in taxable income.
 

After eight years of holding the investment, the plan qualifies for even more favorable tax treatment. Capital gains included in withdrawals are eligible for an annual tax deduction of 4,600 euros for a single person, increased to 9,200 euros for a married couple or civil union partners filing a joint tax return. 

This deduction is renewed every January 1. Above this threshold, earnings are subject either to a flat-rate withholding tax of 7.5% (for premiums paid below the 150,000-euro threshold after September 27, 2017) or to the progressive income tax scale if that option is more advantageous—which is generally the case for low-income households. Social security contributions of 17.2% apply in all cases to the portion of the gains.
 

In practical terms, a couple whose contract includes one-third in earnings can withdraw up to approximately 27,900 euros per year—or 2,325 euros per month—without paying a single cent in income tax, though social security contributions are still due. It is this math that makes scheduled withdrawals a particularly effective tax-saving tool when they are structured to stay below the annual tax-free allowance limit.
 

Plan Your Contract Carefully to Optimize the Withdrawal Phase
This strategy, however, requires advance planning. The choice of contract is crucial. A multi-asset contract allows you to allocate your savings between a euro-denominated fund—which offers capital protection—and unit-linked funds invested in stocks, bonds, or real estate (SCPI, OPCI). 

This diversification strikes a balance between safety and returns, but it carries a risk of capital loss on the portion invested in unit-linked funds. As retirement approaches, it is generally recommended to gradually shift toward a safer allocation by increasing the proportion of euro-denominated funds, in order to prevent a market downturn from eroding capital just as withdrawals begin.
 

The other key factor is the choice between scheduled lump-sum payments and a life annuity. Both mechanisms serve the same purpose—converting a lump sum into income—but differ radically. A life annuity, offered by the insurer, guarantees a lifetime income in exchange for permanently giving up the lump sum: the saver can no longer reverse this decision or pass the funds on to their heirs. 

A scheduled redemption, on the other hand, preserves full ownership of the remaining principal, which continues to earn returns and can be passed on to the designated beneficiaries. On the other hand, it does not protect against longevity risk: if the saver lives a very long time, the principal may be depleted. Withdrawals can be adjusted at any time—increased when needed, reduced, or temporarily suspended—a flexibility that a life annuity does not offer.
 

Finally, the regularity of contributions during the savings phase determines the effectiveness of the withdrawal phase. Building up sufficient capital over the long term—by taking advantage of the compounding effect and opening the policy as early as possible to establish a tax-related start date—then makes it possible to arrange appropriate withdrawals without undermining the policy’s financial stability.