Advance on life insurance: what conditions? How much does it cost ?

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

What is a life insurance advance?

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 designates no more and no less a loan of money from your savings, which the insurer grants you in exchange for the payment of an interest rate. First key aspect of this operation: the insurer will not deduct the amount lent (the advance, therefore) from your capital, which will continue to grow in full. Second element: the amount requested will be paid to you without any tax.

The + Full Life: The advance is a solution to study in case of specific financial need, knowing that you will not have to provide any proof to your insurer and that the amounts involved can be significant, unlike a personal loan. Please note, even if it is included in the contractual notice of almost all life insurance companies on the market, this system is not a right for the insured, the insurer having control over whether or not to grant an advance to his clients (art. L 132-21 of the Insurance Code).

What are the conditions to be met?

The terms of the advance are specific to each company. In practice, all apply more or less the recommendations issued by the French Insurance Federation. Namely that the advance cannot be used on a regular basis, even if nothing prohibits using it several times. Another subject: the amount of the advance should theoretically not exceed 80% of the amount of capital invested in the fund in euros (secure financial support with guaranteed capital), even if some insurers push the cursor up to 90%. If your savings are managed in units of account (non-guaranteed financial supports), 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, a period renewable twice. Finally, be aware that most insurers do not grant the first year of the contract in advance.

The + Full Life: The conditions of the advance are minimalist, allowing everyone to use it. On 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 outstanding advance, any new payment on your contract will de facto be allocated to its reimbursement. Note that you can repay an advance in one or more instalments, without any charges being taken on the payments made. In the event of death, if the advance has not been repaid, the amount will obviously be deducted by the insurer from the capital allocated to the beneficiary of the contract. And if the death benefit is not enough to repay the advance, the insurer will claim the balance from the estate of the deceased.

How much does it cost ?

Like any credit, the advance is not a free transaction. Its annual interest rate must imperatively be specified by the insurer before any decision is made on your part. Note that it will be at least equal to the average rate of government borrowings, calculated on a half-yearly basis at most, or to the interest rate of the fund in euros of the contract for the year preceding the request for the advance, all increased contract management costs and compensation specific to the insurer. This interest rate is determined at the beginning of each calendar year for the current year, it is therefore expected to change over time.

The + Full Life: As you have understood, the real cost of the advance will depend on the commercial policy of the insurer, that is to say the costs of managing the contract and the additional margin taken. We see everything on the market! In 2021, the posted cost of the advance varied from 2% to 6% depending on the company. Be careful, the actual bill will be less, because your savings having continued to grow in full, you will have to deduct the return. Suppose your insurer grants you an advance of €5,000 at an interest rate of 3%; it will cost you €150 in interest the first year. At the same time, these €5,000, not deducted from the value of your contract, will have grown, yielding for example 1.25%, or €63. The actual cost of the advance is therefore €87, corresponding to 1.75% interest.

Why use an advance?

For three reasons. One is a flexible process, without supporting documents or documents to provide, with unrestricted reimbursement conditions.

Two, you will not go through the tax box, the advance not being taxed. Therefore, if you have a short-term cash need that can be met by a next cash inflow, it is undoubtedly a more favorable option than a withdrawal from your contract or the use of a personal loan. However, let’s qualify. For a need not exceeding one year, inexpensive consumer credit is probably preferable.

Third reason: it is a profitable tool for rental investors. Because if the advance is used to finance expenses for the conservation, acquisition, construction or repair of a rental property, then the interest paid on this advance is deductible from property income. (ministerial response no. 021 70, JO Senate of 20 December 2018 ). Attention, the taxpayer must be able to justify the payment of interest during the tax year.

The + Full Life: The advance must be used as a one-time financing tool, therefore not systematic, at the risk of seeing the tax authorities reclassify the operation as a withdrawal. Note that, if at the end of the fixed period you have not repaid the advance, your insurer may make a partial withdrawal from your contract to recover its due.

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