Advances in life insurance: what are the terms?  How much is it ?  - Whole life

Advances in life insurance: what are the terms? How much is it ? – Whole life

Do you need money? Make good use of the advanced mechanism built into your contract, which is a flexible and inexpensive device. explanations.

What is a life insurance advance?

Notice to families with life insurance: You are allowed to get cash in two ways. By withdrawal (called redemption) or through an advance. This contract term specifies neither more nor less a loan of money from your savings, which the insurance company gives you in return for paying an interest rate. The first major aspect of this process: the insurance company will not deduct the amount lent (advance) from your capital, which will continue to grow in full. The second element: He will pay you the required amount without any tax.

life + full: An advance is a solution to study in the event of a one-time financial need, knowing that you will not have to provide any evidence to your insurance company and that the amounts involved can be large, unlike a personal loan. Attention, even if it is recorded in the contractual note of almost all life insurances in the market, this device is not a right of the insured, as the insurance company has a hand in granting or not making an advance to its customers (Article L 132-21 of the Insurance Law).

What are the conditions to be met?

The terms of the advance are specific to each company. In practice, everyone more or less applies the recommendations of the French Insurance Federation. That is, the advance cannot be used regularly, even if there is nothing that prevents it from being used several times. Another topic: the amount of the advance should theoretically not exceed 80% of the amount of capital deposited in the fund in euros (secure financial support with guaranteed capital), even if some insurance companies push the index to 90%. If your savings are managed in units of account (unsecured financial support), the ceiling will be set at about 60% of the capital.

The term of the loan remains. You theoretically have three years to make company payments, which is a period that is renewable twice. Finally, be aware that most insurance companies do not award the first year of a contract in advance.

life + full: Conditions for advancement are minimal, which allows everyone to use it. When ordering, your insurance company must specify all the above points: duration, maximum amount, cost. Always submit your final application by letter registered with the AR. When you have an advance due, any new payment in your contract will actually be set aside to pay it off. Note that you can make a down payment in one or more installments, without incurring any down payment fees. In the event of death, if the advance is not repaid, it is clear that the insurance company will deduct the amount from the capital allocated to the beneficiary of the contract. And if the death benefit is not sufficient to pay the advance, the insurance company claims the balance from the estate of the deceased.

How much is it ?

Like any credit, an advance is not a free transaction. The annual interest rate must be inevitably determined by the insurance company before making any decision on your part. Note that it will be at least equal to the government’s average borrowing rate, calculated on a semi-annual basis at the most, or the fund’s euro rate of return for the contract for the year preceding the request for the advance, all of the insurer’s incremental contract administration and compensation costs. This interest rate is set at the beginning of each calendar year for the current year and is therefore expected to change over time.

life + full: As you understand, the real cost of the advance will depend on the commercial policy of the insurance company, that is, the costs of managing the contract and the additional margin obtained. We see everything on the market! In 2021, the stated cost of the advance varied from 2% to 6% depending on the company. Be warned, the actual bill will be lower, because as your savings continues to grow in full, you’ll have to deduct the return. Suppose your insurance company gives you an advance of €5,000 at an interest rate of 3%; It will cost you 150 euros in interest in the first year. At the same time, this 5,000 euros, not deducted from the value of your contract, will increase, say 1.25%, or 63 euros. Thus, the actual cost of the advance is 87 euros, which is equivalent to 1.75% interest.

Why use an advance?

For three reasons. The first is a flexible process, with no supporting documents or documents to present, with unrestricted payment terms.

Second, you will not go through the tax fund, and the advance will not be taxed. Therefore, if you have a short-term cash need that can be met by the next cash flow, it is undoubtedly a more suitable option than withdrawing from your contract or using a personal loan. However, let’s qualify. For a need not exceeding one year, inexpensive consumer credit is probably best.

The third reason: It is a profitable tool for rental investors. Because if the advance is used to finance expenditures for maintenance, acquisition, construction or repair of rental property, the interest paid on such advance is deductible from property income. (Ministerial Reply No. 021 70, JO Senate dated December 20, 2018 ). Attention, the taxpayer must be able to justify paying interest during the tax year.

life + full: The advance should be used as a one-time financing tool, and therefore not a methodology, with the risk of seeing the tax authorities reclassify the process as a withdrawal. Note that if you do not pay the advance at the end of the specified period, your insurance company may partially withdraw your contract to recover the receivable.

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