Money. Life insurance: should you buy it back or ask for an advance to finance a project

If you need cash urgently and you have a life insurance policy, you may be tempted to withdraw money to fund yourself.

With a contract of less than eight years, this partial purchase will be taxed at a rate proportional to the length of the contract. If it is over eight years old, you will only benefit from an annual reduction of 4,600 euros.

However, if it is a question of buying a car or doing work on your house, this reduction could be very small.

No tax

Another solution is to get ahead. This is defined as a loan given by the insurer. You must, of course, have enough savings in your contract and the advance can only be granted in the short or medium term, generally between two and three years, sometimes renewable.

So you need to pay back quickly. This progress has at least two interests. The first is that, technically, the amount advanced is not withdrawn from the contract.

In other words, not only is it not taxed (unlike a buyback), but in addition, it still produces interest in your favor.

More interesting than consumer credit

In return, it is subject to an interest rate. However, and this is its second advantage, this rate which is generally calculated according to the return of the fund in euros plus one point, is much lower than the consumer loan rate, without taking into account borrower’s insurance and processing costs.

If we base ourselves on the 2023 performance of the average level of funds in euros, this stood at 2.5%. Therefore, the advance will incur an interest of 3.5%.

Note, however, that this rate is revised annually. The amount of the loan, for its part, cannot exceed 80% of the savings invested in cash in euros or 60% for a multi-support contract (including units of account).

Some points of attention

During the term of the loan, there are still some restrictions on your life insurance contract. First of all, you can’t redeem, even partially, even registered, and you can’t change your management method either.

Any payments you continue to make are earmarked for repayment. In addition, be very careful that this advance depends on the actual need for temporary cash flow for a particular project.

First, because the loan is short-term, then because the tax administration may well consider that it is really a disguised repurchase.

In addition, the advance could turn into a solution if you do not respect the repayment date.