Finance

The advance on your Tax savings: an inexpensive loan for a temporary need for money

Do you need money temporarily, for a few weeks or a few months? Rather than taking out expensive consumer credit, opting for a mortgage bridging loan or making a partial withdrawal, explore the track of advances if you are sure you can repay this amount in a relatively quick time. The advance is similar to a loan that the insurer grants you on your savings: it is granted without any tax and, as soon as you can, you repay it without paying entry fees again. Depending on the contracts, it can represent 60 to 80% of the accumulated savings.

Although this is a loan against your savings, this advance is not free. It will be billed to you at the gross rate of return of the fund in euros that is to say before deduction of management fees -, for the year preceding your request.

For the Insurers

Most insurers add fixed costs ranging from 0.5 to 1% per year. Example: you have a capital of 10,000 euros on your life insurance whose fund in euros reported 3% gross the previous year, or 2.5% net if the management fees are 0.5%. You ask for an advance of 1,000 euros for one year. It will be billed 3%, plus 1% costs for example, or 4%, that is to say an overall cost of 40 euros over one year. At the same time, your savings, which have remained invested, will have increased.  At the same time you will also have to consider about the estimate tax return now.

Theoretically, an advance can last up to three years and be renewed once, for a total of six years. If you do not reimburse it, the insurer will transform it into a partial withdrawal with the tax consequences that this may imply. And you will have to pay an entry fee if you reinvest later. Over long periods, the cost of the advance ends up being heavy. Insurers recommend using it only for a few months or a year at most. Also avoid withdrawing it from a contract invested in units of account, because if their value falls, you will have to repay an amount greater than that appearing on your contract. In such a case, it is better to operate an arbitrage towards the fund in euros at first.

Full surrender: it results in the closing of your contract and may penalize you for tax purposes

Of all the ways out of life insurance, this is the most drastic, because the total surrender ends your contract. It therefore allows you to recover all the money placed in your life insurance, but you definitely lose the advantages acquired thanks to seniority. Unless you are really disappointed with your contract or have a compelling need, it is usually better to make a partial withdrawal of the maximum amount allowed and keep a few euros to maintain your contract by taking advantage of its age. So if you want to reinvest in life insurance later, you won’t have to wait eight years to withdraw your capital tax-free.

The Right Options

By making a total withdrawal, you will also have to bear the tax on the gains made: if your contract is more than eight years old and contains more than 4,600 euros in interest (or 9,200 euros for a married couple) you will be taxable on the excess at the rate of 7.5%. If this redemption can take place at any time, it is preferable to do it during the month of January if you have invested in the fund in euros. This is when the previous year’s profit participations are paid into your account. Otherwise, you will only receive the minimum guaranteed rate.

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