(Issued by the President of Life lnsurance Association of Malaysia, Mr Toi See Jong, in conjunction with the tabling of Budget 2016 by the Prime Minister scheduled for Friday, 23 October 2015)

 

Kuala Lumpur, 20 October 2015: In conjunction with the tabling of the 2016 Budget by the Prime Minister, YAB Dato Seri Mohd Najib Tun Razak, LIAM wishes to reiterate our wish list in our mission to promote financial planning and create awareness on the importance of financial protection among the rakyat.

 

Separate Tax Relief to Promote Financial Planning for the Family

 

It is pertinent for all Malaysians to do proper financial planning as it helps them to prepare for their daily needs as well as for life’s unexpected changes in the future.

 

“More Malaysians nowadays have acknowledged the importance of Life insurance as a financial security for protection and savings. It provides funds for the beloved family in the event of one’s untimely demise, total and permanent disablement or occurrence of critical illnesses. It is also a powerful tool for setting aside regularly a certain amount to meet future financial needs such as education and retirement funds”, said Toi in a statement today.

 

However, the current tax incentive system does not differentiate the two important elements of financial planning, i.e. savings and protection. EPF savings serve the purpose of meeting long-term saving needs whereas life insurance is primarily for the purpose of financial protection with a secondary aim of long-term savings. At the moment RM6,000 tax relief on combined EPF contributions and life insurance premiums is given to the Rakyat.

 

In layman’s term, with rising wage level, the EPF contributions have taken up a substantial portion of the RM6,000, leaving an ever-diminishing amount left to be claimed as tax relief on insurance premiums. A separate tax relief would put more money back into the pocket of the Rakyat to relieve them off their financial burden and also to encourage them to have a better financial plan for the future.

 

Having said that, Rakyat will become more Self-Responsible for Financial Planning and this will further improve the Insurance Penetration Rate in line with the ETP‘s objective to insure most of the population or 75% by 2020. The current penetration rate is 55.6% which means almost half of the population is not covered with insurance protection.

 

A study conducted by LIAM and UKM revealed that there is a huge protection gap even for individuals who have purchased life insurance. This means that the insurance cover is still not adequate and there is still a gap of about RM150,000.

 

For families without any form of insurance protection, the protection gap is about  RM723,000 per family .

 

What it means is that, when there is a death to the wage earner of the family, in order for the family to sustain its current lifestyle and continue with their daily consumption, they would need a sum of around RM723,000 to last them for at least 5 years.

 

LIAM has put forward its proposal to split the current tax deduction to two components:

 

i) RM6,000 for EPF contributions; and

 

ii) Another RM6,000 tax deduction for life insurance premiums.

 

Managing the healthcare cost

 

As the country transforms into a high-income and developed nation, the demand for better healthcare will grow stronger. This, coupled with improvement in longevity and advancement in medical technology, will further drive up the healthcare cost of the country.

 

For medical and education insurance, currently a tax relief of RM3,000 is given to the taxpayers. With rising medical costs, the tax relief of RM3,000 is insufficient to cater to the needs of a typical family. For example, for an average family of two adults with three children, the cost of medical insurance is around RM2,500 per annum at the lower end which leaves only about RM500 per annum premium for savings towards the education of the children.

 

As such, LIAM proposed a public-private partnership in managing the healthcare cost of the nation by increasing the tax relief from the current RM3,000 to a more meaningful RM6,000 for medical and education insurance premiums.

 

Conclusion

 

“The life insurance industry plays a very important role in various aspects such as financial protection, financial accumulation and healthcare funding as our country progresses towards a developed nation. With proper advanced planning and the right tax structure, the private sector and the Rakyat can be incentivised to play a bigger role and form a public-private sector partnership with the government in sharing the cost of various social economic benefits associated with a developed nation”, added Toi.

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