The pledge of life insurance
A pledge consists of placing a financial product as collateral with the lending institution so that it is certain of being reimbursed in the event of default by the borrower. If the case arises, the lender then repays itself by drawing on the resources of the financial product.
The pledge can most often relate to a life insurance policy or an Equal Savings Program (PES). It may also apply to capitalization contracts and securities accounts in UCITS (Undertakings for Collective Investment in Transferable Securities).
The advantage of pledging a life insurance policy is that the borrower can continue to value his investments during the repayment of the credit because he remains the sole owner of the life insurance policy. However, it is the lending institution that becomes the first beneficiary of the contract for the duration of the credit.
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The pledge of life insurance on a loan in fine
The loan in fine is a fixed-rate mortgage with a maturity of between 3 and 15 years and a minimum amount of € 21,500 (no maximum amount). It concerns the financing of real estate intended for rental investment. It allows the borrower to benefit from attractive tax deductions. The peculiarity of the loan in fine is that only interest is repaid during the entire duration of the loan. It is indeed when the mortgage expires that the borrowed capital is repaid in a single payment. Consult our insurance form ready in fine.
In order to be able to repay the borrowed capital at the end of the loan, it is necessary for a loan in fine to build up a savings by paying each month a monthly payment on an investment product in order to reconstitute the amount of capital borrowed. In our case, it will be a pledge of life insurance.
The pledge of a life insurance or other financial product is a guarantee often required by the banks as part of a loan in fine because the bank wants to ensure that the borrower will have the necessary funds to repay the capital borrowed in one go at the end of the loan.
When pledging a life insurance, an amount of life insurance funds that is at least equivalent to that of the borrowed capital will be blocked.
The benefits of pledging life insurance on a thin loan
The pledge of life insurance on a thin loan makes it possible to reduce the amount of taxable property income thanks to an optimized fiscal framework.
This is a less expensive guarantee than a bond or mortgage.
It is possible to pledge a life insurance contract without having to cover all the capital borrowed at the beginning of the loan since the borrower can pay monthly a monthly installment on his life insurance so that the borrowed capital is reconstituted at the end of the credit.
Pledge or borrower insurance?
The pledge of life insurance on a loan in fine is therefore a rather advantageous operation. It also allows the borrower to improve his file for the acceptance of the loan offer by the bank. It should be noted however that even if you pledge your life insurance policy on a loan in fine, you will probably not miss the subscription of the basic guarantees of a loan insurance, which are the death and the loss. Total and Irreversible Autonomy (PTIA). The advantage is that your loan insurance will still cost you much less than if you did not pledge on your life insurance.