Life insurance advance: what conditions? How much does it cost?

Do you need cash? Make good use of the advance mechanism in your contract, a flexible and inexpensive device. Explanations.

What is the advance on life insurance?

Notice to households with life insurance: it allows you to have cash in two ways. By withdrawal (called redemption) or through an advance. This contractual term refers to a loan of money for your savings, which the insurer agrees to by paying an interest rate. The first key aspect of this transaction is that the insurer will not deduct the amount lent (the advance, therefore) from your capital, which will continue to pay off in full. The second element: the required amount will be paid to you without any key tax.

The + Full Life: The advance is a solution to study in case of a punctual financial need, knowing that you will not have any justification to provide to your insurer and that the amounts at stake may be important, unlike a personal loan. Please note that even if it is included in the contractual notice of almost all life insurance in the market, the device is not a right for the insured, the insurer having the hand to grant or not an advance to its customers (art. L 132-21 of the Insurance Code).

What are the conditions to be met?

The methods of advance are specific to each company. In practice, all applications or recommendations issued by the Fédération française de l’assurance. Namely, that the bare advance can be used on a regular basis, even if there is nothing to prevent it from being used several times. Another issue: the amount of the bare advance must not theoretically exceed 80% of the amount of capital invested in the fund in euros (secured financial support with guaranteed capital), even if some insurers push the slider up to 90%. If your savings are managed on account units (supports unsecured financiers), the ceiling will be set at around 60% of the capital.

The duration of the loan remains. You theoretically have three years to repay the company, which is twice as long. Finally, be aware that most insurers do not grant the first year of life of the contract in advance.

The + Full Life: The advance conditions are minimalist, which allows you to recover. Upon request, your insurer must specify all the above points: duration, maximum amount, cost. Always make your final request by registered letter with AR. When you have an advance in progress, any new payments on your contract will be de facto assigned to its repayment. Be aware that you can repay an advance in one or more installments, free of charge. In the event of death, if the advance has not been reimbursed, the amount will obviously be deducted by the insurer from the capital allocated to the beneficiary of the contract. And if the death capital is not sufficient to repay the advance, the insurer will claim the balance from the deceased’s estate.

How much does it cost?

Like any credit, the advance is not a free transaction. Its annual interest rate must be specified by the insurer before any decision is made by you. Please note that it will be at least equal to the average rate of government loans, calculated on a half-yearly basis, or to the rate of remuneration of the fund in euros of the contract of the year preceding the request for an advance, all increased contract management fees and remuneration specific to the insurer. What interest rate is determined at the beginning of each calendar year for the current year is how it should evolve over time.

The + Full Life: As you can see, the actual cost of the advance will depend on the insurer’s business policy, that is, the cost of managing the contract and the additional margin taken. We see everything on the market! In 2021, the cost shown in advance ranged from 2% to 6% depending on the companies. Beware, the real bill will be less, because your savings have continued to bear fruit in full, it will have to lower your yield. Suppose your insurer grants you an advance of € 5,000 at an interest rate of 3%; it will cost you € 150 interest in the first year. At the same time, these € 5,000, not deducted from the value of your contract, will have paid off, yielding for example 1.25%, or € 63. The real cost of the advance is € 87, corresponding to an interest rate of 1.75%.

To resort to this in advance?

For three reasons. One is a flexible process, with no supporting documents or documents to provide, with unconditional repayment terms.

Two, you will not go through the tax box, as the advance is not taxed. Therefore, if you have a short-term cash need that can be met by an upcoming cash return, this is probably a more favorable option than a withdrawal from your contract or that the use of a personal loan. Shades though. For a need not exceeding one year, the cheap conso credit is probably preferable.

Third reason: it is a profitable tool for rental investors. Because if the advance serves to finance the costs of maintaining, acquiring, building or repairing a real estate date in lease, then the interest paid under this advance is deductible from property income. (Ministerial Response No. 021 70, OJ Senate of 20 December 2018 ). Please note that the taxpayer must be able to justify the payment of interest during the taxation year.

The + Full Life: The advance must be used as a one-off, therefore non-systematic financing instrument, at the risk of seeing the tax administration reclassify the set-aside transaction. Please note that if you have not repaid the advance at the end of the fixed period, your insurer may make a partial withdrawal from your contract to recover the debt.

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