In a life insurance contract, the sums are never blocked. The subscriber remains the sole owner of his savings and can, at any time, dispose of his money. Whether it is to finance a heritage project, receive additional regular income or even compensate for an unexpected expense, there are many opportunities to use the money invested.
This means that it is possible to recover the paid-up capital and interest without waiting for the eight-year tax deadline. There are two possibilities for the saver to recover cash on his life insurance contract. There is the redemption but also the advance. It’s not always easy to find your way around. So to make the right choices according to your situation, Patrimea enlightens you on these two very distinct means.
Redemption, the most frequent action
In the context of life insurance, making a redemption (also called withdrawal by individuals) amounts to recovering all or part of the sums present on his contract. This operation is often done in advance.
The different types of redemption
There are two types of redemption:
- The full redemption
As its name suggests, the total surrender of life insurance consists of withdrawing all the sums placed on the contract. The money paid by the insurer represents the equivalent of the total value, after social and tax deductions. You should know that this operation automatically leads to the termination of the contract.
If you have invested in a fund in euros, it is strongly recommended to carry out a total redemption at the beginning of the year in order to receive the annual return of the fund.
- The partial redemption
On the other hand, the partial redemption means that only part of the sums invested is debited and paid to the subscriber. On the other hand, if no operation is requested, the rest of the sum invested is kept until the termination of the contract. It is a repurchase which is programmed and which makes it possible to preserve the tax advantages related to anteriority.
Redemption conditions
The redemption request can be made at any time with your insurer. Just define:
- the type of redemption desired
- the amount (if it is a partial surrender)
- the financial media to be redeemed (as part of a multi-media contract)
- the date you want to receive your funds
- the possible periodicity for everything relating to scheduled redemptions
- the tax option chosen
A word of advice: it is better to keep a small sum on your life insurance contract. This makes it possible to preserve the anteriority of this said contract and to benefit from the reductions reserved for those over 8 years old.
Taxation related to the redemption
At the time of redemption on your life insurance contract, taxation applies. Indeed, the withdrawal entails taxation of the products, gains and interest acquired. On the other hand, only the interest related to the capital withdrawn is taxable.
It is essential to opt for the most advantageous taxation according to your situation. This taxation of life insurance is different depending on whether the redemption concerns premiums paid before or after September 27, 2017, and on the net amount of outstanding amounts relating to the products.
Bonuses
For premiums paid:
- before 09/27/2017: taxation at the income tax scale applies. But it is possible to opt for the flat-rate discharge (PFL). 35%, 15% or 7.5% depending on the anteriority of the contract.
- after 09/27/2017: taxation of the Single Flat-rate Withholding (PFU) applies, with a rate of 12.5% or 7.5% depending on the anteriority of the contract. However, if your marginal tax bracket is 0%, it is more advantageous to opt for taxation at the progressive scale of income tax.
For contracts of more than eight years, an allowance of 4,600 euros (for a single person) or 9,200 euros (for a couple) applies before the calculation of income tax.
Social levies
With regard to taxation subject to social security contributions, it is also different. Earnings received are subject to social security contributions, without any deduction.
Supports in euros are subject to social security contributions , each year at the time of their registration in an account.
For supports in units of account (UC), social security contributions only apply at the time of redemption , whether partial or total, and at the time of settlement of the contract.
Since January 1, 2018, the levy rate has been set at 17.2%.
The favorable advance for a temporary liquidity need
The financial advance in a life insurance contract makes it possible to release money without denting its capital. This action is similar to a loan in fine that the insurer makes to the subscriber. There is no impact on the operation and term of the contract.
The advance principle
The law and the life insurance contract define the conditions under which an advance can be issued to the applicant.
- The ceilings
The insurer can issue an advance to any person holding a life insurance contract. The only limit lies in the surrender value of this contract on the date of the request for the advance. Two scenarios arise.
If the contract is multi-support and the sum is entirely or mainly invested in units of account , the amount of the advance will, according to the insurers, often be limited to 60% of this value.
On the other hand, if the contract is mono-support and it only includes a single fund in euros , or if it is a multi-support in which the majority of the savings are placed in the fund in euros, the insurer is less hesitant. He can then lend up to 80% of the redemption value.
- Benefits
There is a certain freedom of use of this advance, whatever the amount. The insurer has no right of inspection. This is an excellent way to avoid applying for a loan from a bank.
There is no need to prove sufficient solvency , unlike a loan application. Seniors also avoid death and disability insurance, which is often essential to cover a debt and which can be costly depending on age.
- A formal request
The request for an advance on a life insurance contract can be made by post, preferably by registered mail with acknowledgment of receipt. Some insurers have moved to dematerialization and it is then possible to send them an email. But it is better to check with them beforehand.
A specific form exists on which a certain amount of information must be mentioned:
- the number of the contract concerned
- their personal details
- the desired amount
To this form, it is necessary to attach a bank account statement because the insurer pays the money only by transfer.
To use this device, the law requires you to wait for the legal waiver period, which is 30 days from the date of subscription. But, generally and to protect themselves, insurers indicate longer periods in their general conditions (between six months and a year).
Reimbursement terms
Of course, the advance must be repaid. Once again, the law regulates this approach.
- Rates and fees
As you can imagine, the advance is not free. The insurer imposes the payment of an annual interest rate . The calculation of this rate is free. The basis may be based on the return of the fund, of the euro compartment of the contract or even on the average rate of government bonds.
The borrowing rate of the advance is generally 1% higher than the fund’s rate in euros for the past year. Some insurers are more greedy and offer a fixed rate.
This must be clearly identified in the document sent by the insurer which formalizes its agreement. This is the settlement of advances which must be signed by both parties.
- The real cost
While the rates may seem high, the actual cost of this operation is lower. The specificity lies in the fact of not starting the savings included in the contract so that it continues to grow.
This real cost corresponds to the difference between the cost of the advance and the capital return on the life insurance policy, without taxation. So the longer you take to repay this advance, the more interest you owe to your insurer.
- The deadline
Generally, advances are given for three years. Of course, if necessary, the duration can be renewed up to two times . That is, a total of nine years at most. But, as said before, the longer you wait, the more it will cost you.
The advance is advantageous if it is for a short period and it is requested in a temporary need for cash. For longer periods (more than 9 years), it is better to favor a classic credit.
Advance tax
When the advance is repaid by the saver to the insurer, it is completely exempt from tax and social security contributions. It is not perceived as income since it is fiscally assimilated to a loan of a short and limited duration.
If you do not repay the advance on time, the insurer takes the amount directly from your life insurance contract through an automatic surrender . In this case, the winnings are subject to the same taxation as a traditional withdrawal.
In the event of the subscriber’s death, before the reimbursement is completed, the insurer recovers the missing sum directly from the death benefit.
So, redemption or advance?
Before making a choice, it is essential to take into consideration all the conditions and relative costs. If you have any questions, do not hesitate to contact one of our advisers.
The advance is attractive due to its tax neutrality, but it cannot be used frequently at the risk of being reclassified as a redemption. However, for exceptional or occasional needs, it is the perfect ally.
It should be noted, however, that the insurer releases the funds within 10 days without any document requested and that the interest is generally paid at the time of the reimbursement of the capital. A real advantage to preserve your cash!
Not often used, it offers a certain freedom and makes it possible to avoid paying tax on capital gains in the event of redemption.
