Life insurance: how to optimize withdrawals?

(Photo credits: Pexels - Pixabay)

(Photo credits: Pexels – Pixabay)

The French remain very attached to life insurance for the financing of their medium-long term projects. Unlike the PEA for example, redemptions made on the contract do not lead to the closure of the envelope, regardless of when they are made. For this reason, it is common for individuals to recover part of their outstandings to finance a project. Find out in this article how to optimize withdrawals from your life insurance policy.

Choose the worst performing contract

First, if you have several life insurance contracts, it will be advisable to draw from the least efficient contract, either because the euro fund delivers a lower return than another euro fund held, or because your choice of UC is less efficient than that achieved on another contract.

Lighten the euro fund as a priority

The fund in euros shows anemic performance and the rate of this support has only been falling for many years. Indeed, the average return of the fund in euros should oscillate for the year 2021 around 1.1% against 1.3% in 2020 and 1.4% in 2019.

The return on the euro fund is therefore much lower than the gains you can hope to derive from your units of account if they are invested in the equity market or in SCPIs, for example. However, the most risk-averse who anticipate a correction or an increase in volatility may intentionally make redemptions on unit-linked units rather than the euro fund.

Consider tax benefits

But that’s not all. You will also have to take into account the anteriority of the contract and prefer a contract open for more than 8 years, which will allow you to benefit from significant tax advantages. In fact, you will then be able to benefit from reduced taxation on earnings: 7.5% flat-rate levy in discharge (PFL) + 17.2% social security contributions, i.e. a total of 24.7%. Remember that the gains on redemptions for contracts less than 8 years old are taxed at the single flat rate levy (PFU or “flat tax”) of 30%, which includes tax and social security contributions.

Remember that to benefit from the reduced tax rate of 24.7%, the total outstanding amount on all your contracts combined must not exceed 150,000 euros (300,000 euros for a couple).

Remove only what you need

Finally, no need to withdraw more than you need. It will be in your best interest to remain invested than to place your purchases on bank investments with guaranteed capital which yield very little and even show a negative return if inflation is taken into account. In addition, if your contract is more than 8 years old, you benefit from an abatement on your earnings withdrawn of 4,600 euros for a single person and 9,200 euros for a couple. By simply withdrawing less than its limits (if possible), you will avoid being taxed on your winnings.

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