What is an SIALP: An Individual Long-Term Whole Life Insurance Policy

Learn about how this type of life insurance works

These days there are a wide range of savings products being offered on the market, all of which will allow you to plan out your saving for the future and make it possible for you to accumulate a good economic “cushion” that you can rely upon once you have reached retirement age.

In this case, we are going to focus on Long-Term Savings Plans, also known as LTSPs.

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Background

As part of the tax reforms that would took place in Spain in 2015, Law 26/2014 of November 27 introduced a new type of instrument for long-term saving, known as a Long-Term Savings Plan or Savings Plan 5. This saving could take place either in the form of a life insurance policy (an SIALP: the acronym in Spanish for Individual Long-Term Whole Life Insurance Policy), or in the form of a term deposit at a bank (a CIALP: Individual Long-Term Savings Account). As we will explain in more detail below, the most attractive aspect of using either one of these instruments is that the interest generated by your savings is tax exempt, as long as your savings remain in the account or policy for at least 5 years and provided the maximum annual contribution of €5,000 has been complied with.

You must also keep in mind that you will only be allowed to contract one of these financial products or the other (either an SIALP policy or a CIALP term deposit), since according to the cited legislation, “a taxpayer may only be the holder of one Long-Term Savings Plan at any given time”. This means that all of your contributions must be made into a single individual life insurance policy (SIALP) or into a single term deposit/financial contract (CIALP), or else your contributions can be made into a series of such plans, as long as you are never the account holder for more than one of them simultaneously.

What is an SIALP

This is a type of life insurance designed to encourage long-term savings by offering specific tax advantages, and by providing customers with the security of earning interest throughout the entire period of their investment. It offers a lump-sum payment upon reaching its maturity date, in an amount that is known in advance at the time when the contribution is made.

How it works: contributions and redemption

As mentioned at the beginning of this article, the maximum amount you can contribute into one of these products each year is €5,000, as established in the applicable legislation.

However, this amount is not counted in relation to the maximum contribution limits established for other long-term savings products, such as a pension plan, guaranteed benefit plan, employer pension plan, individual systematic savings plan (PIAS in Spanish), etc.

The cited limit also does not include any interest that may be generated by the contributions made into the SIALP. This product allows the customer to recover the full value of the insurance policy, referred to as full redemption, if a sudden need for funds should arise. Customers may also ask to have the total accumulated amount of their contributions transferred into another Individual Long-Term Whole Life Insurance Policy (SIALP) or Individual Long-Term Savings Account (CIALP). However, partial redemptions or transfers are not allowed.

The product is an SIALP with guaranteed benefits paid upon maturity of the contract. However, if the customer opts for a full redemption or transfer, the value received or transferred may be less than the total amount of the contributions made, depending on the current market conditions.

The main thing to remember is that as long as customers comply with the commitment to wait for at least the 5-year period established by law before redeeming their savings, while also complying with the annual contribution limit of €5,000, they will be able to benefit from the most attractive aspect of the product: all of the interest generated up until the redemption date is tax-exempt.

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If a customer redeems his or her plan before the established 5-year period has passed, or fails to comply with the €5,000 annual contribution limit, the bank must perform the appropriate tax withholding or submittal on the amounts corresponding to capital gains that have accrued since the plan was first opened, including those that may be received upon cancellation of the plan.

Once the maturity date arrives, and as long as at least 5 years have passed, customers will always be able roll over their accumulated savings into a new SIALP, with the age of the original plan being maintained along with the resulting tax advantages.

Finally, one other aspect to keep in mind is related to the life insurance component of an SIALP, which guarantees payment of an amount equivalent to 101.5% of the total contributions made if the insured party dies prior to the contract's maturity date.

In summary, this is a product that can give customers positive returns, security, and peace of mind, since at all times they will be aware of the value of their investment upon maturity of the policy, while also benefiting from some very favorable tax advantages.

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