What is guaranteed-interest life insurance?
Guaranteed-interest life insurance (sometimes called ‘Class 21’ or savings-linked insurance) provides a safe way to save for the medium or long term. You receive a guaranteed return and you also have the potential to earn an annual profit share. At KBC, you can take out this type of product for a number of reasons, including as a way of saving towards your retirement or for the long term. By saving this way, you can also qualify for tax relief of up to 30% of the premiums you pay. Read on to find out more about the world of savings-linked insurance.
How does guaranteed-interest life insurance work?
You can save from as little as 10 euros a month with this product. You get a fixed return on each deposit until the end of your contract. In addition, the return can be supplemented annually with a variable, non-guaranteed profit share, which depends on the economy in general and KBC Insurance NV's earnings.
Savings-linked insurance therefore offers you more certainty and security than a pension savings fund or unit-linked insurance. Depending on whether you choose pension saving or long-term saving, there are other benefits, costs and additional options, all of which are explained below.
Both pension saving and long-term saving qualify for tax relief. Depending on your personal situation, you can save up to 30% in tax. Your maximum tax break is 327,50 euros a year with pension saving and as much as 735 euros a year with long-term saving. However, it’s important to bear in mind that the tax rules may change in the future.
What does guaranteed-interest life insurance cost?
- Insurance tax: for most guaranteed-interest life insurance policies, you pay a once-only insurance tax of 2%. The exception is pension saving, as anybody opting for this type of scheme is exempted from this tax.
- Entry charges: after any deduction of your insurance tax, you pay a 5% entry charge.
- Management fees: KBC does not charge any management fees for savings-linked insurance products.
- Withholding tax: you are exempt from withholding tax (unless you were to withdraw capital during the first eight years of a savings-linked insurance contract without tax benefits).
You can include death cover
You can add death cover to any guaranteed-interest savings insurance product in order to protect your next of kin should you die. This is worth thinking about if you want to protect your family in the event of a premature death of a parent. The premiums for this supplementary cover are deducted from the savings that you have accumulated under your savings-linked insurance contract.
If you take out death cover, you choose the beneficiary who’ll receive your accrued assets and/or the insured capital in the event of your death.
Pension saving or long-term saving?
Anyone who pays taxes and is under 65 qualifies for tax relief when they have a pension savings plan. In 2024, you will get 30% back if you save up to 1,020 euros annually in such a plan. If you opt for the higher maximum of 1,310 euros, you get 25% tax relief. In both cases, you also pay a little less in local taxes.
Therefore, pension savings insurance such as the KBC Home & Pension Plan is a very accessible and safe way to save for your pension and get tax relief at the same time.
The question is when should you opt for a long-term savings plan? Actually, you don't have to choose at all. The pension savings system can be perfectly combined with long-term saving. However, your tax break with a long-term savings plan depends on several factors, such as your net taxable earned income and possibly your home loan. It’s therefore a matter of maximising your tax relief based on your personal situation.