Fund policies: secure tax advantages, protect heirs!

Fund policies: secure tax advantages, protect heirs!

The connections between unit-linked insurance and the withholding tax in the event of an inheritance are becoming increasingly important. Particularly against the background of the current tax environment, it is clear that fund policies offer numerous advantages for investors. Experts emphasize that choosing the best product depends heavily on the individual situation of the customer, which Michael Hauer, head of IVFP, impressively emphasizes. According to him, understanding the different models is essential for advisors to provide the best possible recommendation to clients.

How Insurance Journal reports, the withholding tax offers significant tax advantages for unit-linked insurance compared to direct investments in funds. While a partial exemption of up to 30% applies to direct investments in investment funds, up to 28% withholding tax may apply to direct fund investments. Fund policies show clear advantages here, at the latest when the tax benefits exceed the acquisition costs, which amount to around 2.5% over five years.

Tax aspects and survivor benefits

Fund policies offer the major advantage over fund portfolios in that the income is not taxed immediately. No withholding tax is due on distributions during the term or on the sale of shares. Instead, taxation only occurs when the payment is made, although here too there can be attractive partial exemptions, such as a 15% exemption for a contract term of at least 12 years. This supports the optimization of returns over the years.

A striking example to illustrate this is the case of a 55-year-old who invests 100,000 euros in a fund policy. In the event of his death at the age of 83, his daughter would receive 300,000 euros tax-free, with the tax-free amount for (step)children being 400,000 euros. Thanks to the policy cover, the heirs are protected from the so-called footsteps theory of tax law, which further increases the attractiveness of this form of investment.

Advantages and flexibility of fund policies

The flexibility of the fund policies proves to be considerable. Investors can make additional payments, increase or reduce contributions and make partial payouts. In addition, a lifelong pension from the insurer is possible thanks to the structure of fund policies, which offers additional security in old age. The ability to switch funds offers another advantage as this often results in a higher return compared to direct investment. Profits can be secured or losses avoided.

Another positive aspect is the simplification of administration. Investors do not have to open a portfolio and the administrative effort is greatly reduced. This is complemented by psychological benefits: reserves through an insurance product tend to promote the savings rate and extend the duration of savings because the balance is less visible to the investor. This way, impulsive spending is reduced.

In addition, unit-linked insurance offers security services that encourage investors to maintain a sensible fund distribution through process management and rebalancing. These measures can help to remain stable even in turbulent markets.

Despite these advantages, investors must be aware of the higher start-up costs in the first five years as well as the often confusing terms in the offering documents. Nevertheless, fund policies, especially if they offer low costs, flexible design options and a good selection of funds, can be a better choice for many investors compared to direct investments money and consumers summarizes.