In order to guarantee some savings for you and your heirs, taking out a life insurance policy is one of the relevant solutions. However, this contract freezes part of your capital. In case you have a momentary need for financial resources, one solution may be to request an advance on your life insurance. Equivalent to a loan, the conditions and the cost of this advance will vary according to the conditions of your contract. Before purchasing your life insurance, don't hesitate to make sure you have the option of requesting an advance on your policy.
What is life insurance?
Before looking at how to get an advance on your life insurance, it is important to remember what this savings product is. In return for the payment of premiums by the holder, the insurance company undertakes to pay an annuity or a capital to one or more persons after a certain period provided for in the contract. Depending on the terms of your contract, you can choose to receive payment of the amount saved upon the death of the contract holder or after a specified number of years, even if the subscriber is still alive.
What is the advance on life insurance?
When faced with an unforeseen financial need, resorting to an advance on life insurance can be an attractive solution. As with a conventional loan, this advance involves a payment of interest to the insurance company granting the loan. One of the main advantages of the life insurance loan is that the capital accumulated on the policy remains the same. Thus, the remuneration of savings continues to be based on the amount already saved.
Not taken from the life insurance contract, the advance also benefits from an absence of taxation. The advance is therefore different from the partial repurchase which will involve the withdrawal of part of the funds committed associated with an obligation to pay taxes. Depending on your situation and the general conditions of your contract, it may therefore be more interesting to give preference to the advance.
How the life insurance advance works
Ask your insurer
Before making your request for an advance on life insurance, it is necessary to refer to the general conditions of your contract. The advance request is made by mail with acknowledgment of receipt based on a certain model to be followed. In the event that this possibility is provided for in your, then the insurer cannot oppose your request.
Unlike redemption, the advance does not change the amount of savings already made. To obtain your advance, two main conditions must be met:
Age of the contract
Amount of savings made
Depending on the terms of the contract, the minimums set for granting advances may vary. In order to regulate advances and prevent them from becoming redemptions, the conditions and amounts that can be requested in advance will vary according to the types of contract contract:
Contract in euros: the amount of the advance cannot exceed 80% of the amount saved. Regarding the reimbursement rate, it must be at least at the level of the average State rates plus management fees and remuneration for the insurer.
Multi-support contract: the amount of the advance cannot be greater than 60% of the savings made. In addition to the management fee increases and the remuneration for the insurer, the funds must be reimbursed with a remuneration rate of the euro compartment of the contract for the year preceding the advance request.
These advance ceilings are applied by Article L. 132-21 of the Insurance Code and prevent the advance from becoming a redemption.
The effects of the advance on life insurance
Unlike a buyout, the life insurance loan keeps the value of the contract and thus continues to earn interest based on the amount of the contract. Not corresponding to a final outflow of money, the advance is therefore not subject to taxation. Obtaining an advance on your life insurance thus allows you not to impact the value of your contract while obtaining a kind of loan under good conditions.
The repayment terms
Depending on individual needs, it may be better to take out a life insurance advance rather than a traditional loan or life insurance buyout. Indeed, unlike a classic loan, repayment is not made monthly. The reimbursement of the amount advanced and the related costs, is made at the initiative of the subscriber who has a maximum period of 6 years to recover the amount. In the event that the repayment has not been completed at the end of the maximum term, the amount still due will be deducted directly from the surrender value. The repayment of the advance is facilitated since the effort made by the subscriber corresponds to the difference between the cost of credit and the remuneration obtained through life insurance.
Why choose an advance on life insurance?
Between advance and redemption, it can sometimes be difficult to choose the most interesting solution. The advance on life insurance is suitable to meet an immediate demand for finance and if the policyholder intends to repay the capital. Depending on the conditions of each contract, the choice between advance and partial surrender may nevertheless vary. To determine which solution is the most interesting, it is necessary to take into account different elements:
Withdrawal of funds: temporary or permanent
Cost of the operation: interest to be reimbursed or free
Contract value: unchanged or reduced
Taxation: no taxation or income taxes
Transfer of amounts to the contract: without or with entry fees
Before choosing between an advance on life insurance and partial surrender, it is therefore necessary to take into account these different elements in order to assess the cost of the operation according to the option chosen. By opting for the life insurance loan, you can quickly get your funds without changing the value of your contract. Depending on the conditions of the repayment and your goal thereafter, you will be able to choose the advance rather than the withdrawal.