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.
Tax efficient
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 317.50 euros a year with pension saving and as much as 705 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 have a home loan, for instance. 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 2023, you will get 30% back if you save up to 990 euros annually in such a plan. If you opt for the higher maximum of 1,270 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.
