1 / Advance on life insurance: how it works
You can borrow or withdraw from your life insurance. But there is another alternative: the advance practiced by most insurance companies. With this system, the insurer grants a loan the amount of which cannot exceed a percentage of your savings. As a general rule, 80% of the contract value if it is in euros and 60% if it is in units of account. It does not matter whether you have concluded your life insurance contract directly with an insurer or through your bank.
For what purchase?
You are free to use this cash. The funds are available quickly. They can be transferred to your bank account within eight to ten days.
What does this change to your contract?
The advance does not change the way your contract works. It is not deducted from your savings. The profitability of the latter therefore remains intact. It generates interest normally. The only constraint: it is more difficult to obtain a partial withdrawal, as long as the advance is not repaid. This is a point to discuss with your insurer.
2 / The advantages
No tax to pay
The advance is not subject to any social or tax deduction, since it is a loan. It is therefore often more attractive than a large withdrawal which would expose it to taxation, even if it is over eight years old.. (all the details)
Flexibility and ease
The vast majority of life insurance contracts provide for the possibility of an advance. It's simple: just ask the insurer. The latter is not required to agree, but more often than not it is okay. Unlike a traditional loan, there is no credit study since the credit is guaranteed by life insurance. For the same reason, no death / disability insurance is required. This is a real simplification for seniors who often have difficulty obtaining this coverage.
The rate charged
The amount borrowed under the advance is subject to interest. The insurer indicates at the time of the transaction, the conditions for calculating the rate and its annual review. In 2013, the rate may be, for example, 4.20%. It's a high rate, but during that time your money continues to earn interest, so a withdrawal would have stopped that profitability. The “net” rate actually borne is therefore relatively low. Ask your insurer for an estimate by number of months of the loan.
Avoid an unfavorable withdrawal
If you have a unit-linked contract and the markets are trending down, the advance helps prevent an unfavorable pullback. By not touching your savings, you keep the possibility of profiting from a possible return of the rising markets.
3 / What is the deadline for reimbursing?
The advance is granted for a period of three years, in principle renewable twice (ie a maximum of nine years). Nothing prevents you from repaying the full amount without penalty. The faster you repay, the less interest you will pay. In the absence of reimbursement at the end of the contract (for example, in the event of the death of the insured), the insurance company will not return all of the savings to the persons designated as beneficiaries. It will deduct the sums not reimbursed.
Before opting for an advance, ask your insurer or banker to do comparative simulations between the cost of this advance (cost of interest) and the cost of a buy-back, which would then be a tax cost.
With the collaboration of the French Federation of Insurance Companies