There are tax incentives for life insurance - New Sunday Times

Mark is a firm believer in the protection offered by life insurance and started buying life and medical insurance early in his working life. He also bought life and medical insurance for his wife and son.

Mark is also a responsible Malaysian citizen and fills in his tax returns form (Borang BE) and submits it on time.

Unfortunately, Mark consistently omits filling in an important section in his Borang BE that allows for tax relief for the purchase of life and medical insurance.

Unknown to Mark, his ignorance is costing him money as it results in a higher tax payable for him every year. By his oversight, Mark loses out on tax incentives not only for his own life insurance but also that of his wife.

His son's life insurance premiums are incidentally, not allowable. However, his son's education and medical policy premiums, if any, are allowable.

The tax incentives
Several tax incentives have been introduced in the past few years to promote life insurance products, such as:

  • Tax exemption on annuity proceeds;
  • Tax relief of up to RM6,000 for life insurance premiums and contributions to approved retirement funds;
  • Tax relief of up to RM3,000 for premiums paid on education policies and medical policies; and
  • Tax relief of up to RM1,000 per annum for annuity policies purchased from EPF savings.

Do not miss out on these incentives if you qualify for them. If you are a life insurance purchaser, your life insurer will send you an annual statement that indicates how much premiums you have paid for both life insurance and medical insurance in the previous year.

These figures are to be filled in your Borang BE to claim your tax relief.

Quantum of relief

The claim for life insurance premiums paid is segregated from the medical insurance premiums paid.

Tax relief is given for life insurance premiums and contributions to approved retirement funds (such as the EPF) combined, up to RM6,000.

A separate tax relief is given for premiums paid on education and medical policies, up to RM3,000.

The maximum combined amount of RM9,000 is deducted from your total income figure to arrive at your chargeable income figure, which is used to compute your income tax chargeable.

The actual quantum of the tax savings depends on your level of income, which determines your tax bracket. This tax relief is covered under section D (D15 to D17) of your Borang BE.

While the life insurance and medical insurance premiums for the individual and spouse qualify for tax relief, the maximum amount allowed is only up to RM6,000 for life insurance (which is combined with EPF contributions) and RM3,000 for education and medical insurance.

If Mark paid RM4,800 for his life insurance and RM2,400 for his wife, the amount allowable for tax relief is limited to the maximum of RM6,000 and not RM7,200.

If Mark's wife is an income earner and they opt for separate assessment, both Mark and his wife would be entitled to a maximum tax relief of RM6,000 individually. The same goes for the tax relief of up to RM3,000 for education and medical policy premiums, which is allowable for the individual, spouse and children.

* This article is brought to you by the Life Insurance Association of Malaysia. Whilst every endeavour has been made to ensure the information provided is correct, this article should not be taken as a tax advice and the association is not responsible for any misstatement.