Real estate purchase
To make a real estate purchase, it is possible to use life insurance. Thanks to certain financial packages, the buyer can use his life insurance to guarantee a loan, or have an advance on a life insurance policy.
Faced with the dangers of life, life insurance makes it possible to shelter the loved ones of the insured.
- Lifetime life insurance for the benefit of a fine credit
- Advance on contract, or how life insurance makes credit
- How can life insurance replace loan insurance?
In finance, montages are associations between different financial products. Combined with each other, they make it possible to carry out operations of different sizes. This is the case of credit and life insurance.
Most of the time they are complementary. However, from time to time, life insurance and credit may be incidental to each other and vice versa. But it happens more rarely however, that the life insurance comes to replace the credit.
Rental investments very often use this duo. This becomes significantly more rare when it comes to financing a primary residence. Real estate credit which only pays interest over its term, which generally ranges from 3 to 15 years. At the end of the loan, you must repay the sum initially borrowed at once.
We can therefore repay the credit in fine in two ways:
- The sale of real estate financed, which then has little interest when it comes to building a real estate asset for retirement. In addition, this solution is risky in case of decline in the value of the property.
- The contribution on a life insurance contract, which intervenes regularly. An amount is paid on a life insurance contract in order to replenish the borrowed capital.
Instead of paying big monthly mortgage payments, you put money into life insurance.
Reminder: if we use a life insurance contract as a guarantee for a debt (real estate loan for example), we say that life insurance is ” pledged “, we made a pledge.
Advantages: by not repaying the entire amount borrowed until the maturity of the credit, one keeps a capital invested in life insurance, which earns money. Even with caution, life insurance provides a return often equivalent to the interest on the loan, not to mention the tax benefits it allows.
How to pay inheritance tax
In the event of death, and thanks to compulsory death insurance in any real estate loan, the heirs recover a fully paid property, but also a life insurance which escapes important inheritance tax.
Disadvantages: the risk of not having enough money at the end of the credit in fine is always present. Unlike a classic mortgage called “depreciable”, accidents of life are not necessarily taken into account.
The down payment
Most of the time the down payment on the life insurance contract pledged for a fine credit is 30%. This is often the best compromise: not too large amount and moderate contributions. It could be compared to the contribution in a depreciable loan.
It is quite possible to invest up to 50% or even 100% of the borrowed capital. The advantage of positioning yourself on a large down payment is that you do not have high payments in the course of your credit.
Until recently, banks have been demanding the Euro fund to secure the performance of life insurance. With the performance of this fund and its abandonment by insurance companies, banks’ requirements have eased to balanced supports. It is strongly recommended to position yourself on risk-free assets for a major part of the investment. It can be boosted by 10 to 15% of funds a little offensive to boost the performance of life insurance.
The limits of the pledge of life insurance
There are 2 main limitations to this montage:
- The debt ratio. Indeed the contributions are taken into account in the calculation of the debt ratio. It is for one of these reasons that you do not necessarily have to leave a relatively low amount for the departure payment of your life insurance policy. The lower the starting capital, the higher the contributions will be.
- Follow-up of the reconstitution of the borrowed capital. It is not surprising that banks regularly ask for a situation. Some banks even include a mandatory replenishment clause with a specified amount or an obligation that this amount will eventually pay off the credit in fine. You must contact your bank advisor or wealth management advisor to make regular points on the investment media or the amounts of the contributions to be adapted.
Why make a credit in fine provided by a life insurance?
The benefits of such a form of real estate financing are visible when buying an apartment or house for rent. Rental investment is more profitable when you can take advantage of the tax benefits that life insurance offers.
In addition, the risk is more moderate: in case of concern, the sale of real estate will most often repay the credit in fine, which is otherwise more comfortable than having to sell your main home.
- The free installation: the collateral is completely free at most banks
- The ease of the transaction: the act of pledge of the contract is written at the same time as the offer of credit. There is then only to sign.
- The financial gain in relation to the Disability Death Insurance: not only the life insurance contract continues to generate interest, but in addition the borrower saves on loan insurance paid at a loss. For a mortgage, the amounts easily climb to several tens of thousands of euros.
- The initial capital: as much for a depreciable credit, it is possible to negotiate to pledge a life insurance of an amount of 80% of the requested credit, as for a credit in fine an amount of 100% will be required. Clearly, one will have to put in guarantee a life insurance of an amount practically equivalent to the sum of the loan.
- The investment support: as well as when pledging for a credit in fine, the life insurance contract must be secured to the maximum. Investment vehicles should be chosen with caution, although sometimes a moderate risk in a small proportion may be tolerated.
- In case of death of the borrower: in this case, the life insurance policy will be realized in favor of the bank. If this is greater than the credit amount, the beneficiary will receive the difference.
It is therefore a very good choice to use life insurance rather than borrower insurance, provided that life insurance is very consistent. We note that again, the bank, the credits and even the insurances cost much cheaper to the rich.