Advance, partial withdrawal, full redemption? When it comes to using the money invested in your contract, choose the exit method that best suits your needs. Life insurance is not an investment like the others and this peculiarity is still found at the time of exit, when savers want to get their money back.
They have three distinct possibilities to recover their savings
You can think of advances, partial withdrawal (redemption) and total withdrawal which terminates the contract. There is a fourth, still very little used, with the transformation of the capital into a life annuity. But there, it is no longer a question of “digging”, since the capital is definitely acquired by the insurer, in exchange for income paid for life. How to choose between the first three possibilities? It depends mainly on your needs and the size of the earnings contained in your contract.
Partial redemption: an exit that limits the weight of the tax
The partial redemption is the exit of life insurance by the royal way. It consists of withdrawing only part of the capital leaving the balance invested. The latter therefore continues to benefit from the tax advantages acquired over time, whether it concerns exemptions from income tax or inheritance tax. Using the estimate tax return is important.
This is the preferred formula to meet a one-off need for money or to supplement your resources over time. “It is one of the best solutions for obtaining additional low-taxed income”, confirms the director of diffusion. And for good reason: each partial redemption includes at the same time a part of the initial capital, that is to say the payments that you have made, and a part of interest or capital gain.
- However, only the latter is taxable. But even this portion can escape tax: if your contract is more than eight years old, you have the possibility of withdrawing 4,600 euros each year from these earnings without being taxed, an allowance increased to 9,200 euros for a married couple. In the end, if we take into account the initial capital, which is still tax-free, the amount of the fully exempt redemption is much greater. The maximum amount that can be withdrawn without tax therefore depends on the share of the gains on your contract.
These allowances being renewed each year, you just need to spread your withdrawals over time to recover all or part of your savings sheltered from the tax authorities. Hard to beat ! However, if your life insurance is less than eight years old, you will have to deal with tax. Gains withdrawn will be taxed at 35% if your contract is less than four years old, and at 15% if it is between four and eight years old. However, due to the relatively low share of interest in recent contracts, the tax burden will again be quite low.
All modern life insurance contracts offer the possibility of partial surrenders. And many of them even allow them to be automated so as to deliver you a regular supplement of income, paid directly to your bank account, every quarter most often. However, you will have to respect a minimum redemption amount – generally equal to the minimum amount of payments authorized on the contract – and leave a capital of a few hundred or thousands of euros invested. This amount also varies depending on the insurer and the product lines.