Life Insurance: Withdrawal or Partial Surrender?
The funds you have invested in your life insurance policy are accessible at any time. So, whether you have a financial need or simply want to make a project a reality, you have the option to withdraw some or all of your savings. However, before initiating a surrender, it is essential to fully understand the implications of this decision.
Assessing the Tax Implications
Interest earned on funds invested in a life insurance policy is not taxable until the funds are withdrawn. It is also subject to social security contributions at a rate of 17.2%. If your policy is more than 8 years old at the time of withdrawal, the gains are subject to favorable tax treatment: they are exempt from income tax up to an annual limit of 4,600 euros for a single person or 9,200 euros for a couple. However, if the withdrawal is made before the policy reaches 8 years, the tax treatment becomes less favorable, as the gains are subject to a 12.8% flat-rate withholding tax (PFL), plus 17.2% in social security contributions, totaling a 30% tax burden.
Before cashing out your life insurance policy, it is therefore recommended that you check how long you have held the policy.
Check whether there are any withdrawal fees
Some unit-linked funds, particularly those linked to real estate, impose penalties for withdrawals made before a certain period has elapsed. In this context, an early withdrawal would result in withdrawal fees of up to 3% of the invested savings.
Is now the right time to sell your unit-linked investments?
Unit-linked investments in life insurance are generally tied to financial markets, such as mutual funds invested in stocks or bonds. As a result, their value can fluctuate both up and down. Before making a withdrawal, it is crucial to analyze each investment fund to determine whether you are in the black (with a gain) or in the red (with a loss). Withdrawing your money when the value is down would result in a financial loss.
Requesting an Advance
If you need short-term cash, you can request an advance from your insurer. Working on the same principle as a loan, the advance allows you to borrow a portion of the capital invested in your policy, subject to interest. The amount advanced is generally limited to 80% of the capital invested in euro-denominated funds and 60% of the capital invested in unit-linked funds. Repayment can be made in one or more installments within a period of 3 years, which may sometimes be extended. This way, you have access to cash without having to surrender your policy.
