Tax Returns: What You Need to Know If You Have Life Insurance
Tax filing season is here, and with it comes a host of questions for life insurance policyholders. Do you need to report your earnings? Which boxes should you fill out? Here’s a guide to help you avoid the most common mistakes.
Every spring, life insurance policyholders face the same question: Should they report this investment on their tax return? The answer depends entirely on the transactions carried out over the past year, and the logic behind it is simpler than it might seem at first glance. A brief review of the fundamentals is necessary to approach this tax filing deadline with confidence.
The basic principle is as follows: as long as the money remains in the policy, there is nothing to report to the tax authorities. Interest earned on the euro-denominated fund and any capital gains generated by the unit-linked investments are not taxed as long as no withdrawals have been made. This is a major difference from ordinary bank savings accounts, where interest is subject to a flat-rate withholding tax each year, regardless of whether it is withdrawn or not. For a saver who simply lets their policy grow without touching it, the tax process therefore boils down to a single check: ensuring that nothing has been incorrectly pre-filled by the tax authorities on the tax return.
No withdrawal, no tax return
The situation changes once a withdrawal has been made during the year 2025. Whether partial or total, this withdrawal triggers taxation, but only on the capital gains portion included in the amount withdrawn. The calculation never applies to the entire amount withdrawn. It applies exclusively to the capital gain—that is, the difference between the amount received and the corresponding contributions—calculated on a pro-rata basis in the case of a partial withdrawal. If the transaction results in a capital loss—which can happen when the investment units have lost value—no tax is due.
The applicable tax regime varies depending on the date the contributions were made. For amounts invested on or after September 27, 2017, the single flat-rate withholding tax applies by default, at a rate of 12.8% for income tax, plus 17.2% in social security contributions. However, the investor may opt for taxation under the progressive tax scale if it is in their best interest, particularly when their marginal tax rate is lower than 12.8%. For contributions made prior to this cutoff date, the old tax regime continues to apply with its own tax brackets, which requires clearly distinguishing between the two categories when filing the tax return.
Contracts that have exceeded the eight-year term offer an additional benefit that deserves special attention. An annual tax exemption applies to withdrawals: 4,600 euros for a single person, 9,200 euros for a married couple filing a joint return. This deduction is not always automatically applied by the tax authorities: it is the taxpayer’s responsibility to verify that the information is correctly entered in box 2CH of their tax return. Failing to do so risks paying taxes that are not owed—an error that occurs more frequently than one might imagine.
Contracts older than eight years: a deduction you shouldn’t overlook
From a practical standpoint, the boxes to check vary depending on the contract’s age and the date of the payments. For contracts older than eight years, boxes 2DH and 2CH apply to payments made before September 2017, while boxes 2VV, 2WW, and 2UU cover payments made after that date. For more recent policies, the relevant boxes are 2XX and 2YY for the old system, and 2ZZ and 2CK for the new one. This variety of fields can be confusing, but the single tax form sent each year by the insurer provides a detailed breakdown of the amounts to be entered in each box.
The most common piece of advice from tax professionals: never rely solely on automatically pre-filled forms. You should always compare the amounts shown on your tax return with those listed on the insurer’s statement. Correcting any discrepancies early on avoids a tedious back-and-forth with the tax authorities—or even a subsequent tax assessment. If in doubt, consulting a tax advisor or a notary can help ensure the process goes smoothly, especially when multiple policies exist with different payment dates.
