Kuala Lumpur, 8 October 2014: One of the proposals that the Life Insurance Association of Malaysia (LIAM) has put forward for the Budget 2015 is that it hopes that the Government will provide more incentives to promote financial planning among Malaysians.

 

“As Malaysia progresses towards a high-income nation, it is important that the mind-set of the Rakyat also transforms and the Rakyat is more self-reliant in managing their financial wellbeing. 

 

The current taxation system provides a RM6,000 tax deduction on combined EPF contributions and life insurance premiums.  It is noted that the RM6,000 tax deduction has not been revised for many years and has hence suffered inflation erosion.  The last revision was in tax assessment year 2005 when the amount was increased from RM5,000 to RM6,000, “ said Mr Vincent Kwo, President of LIAM. 

 

The current tax incentive system also does not differentiate the two important elements of financial planning, i.e. savings and protection. 

 

EPF is for the purpose of meeting long-term savings needs while life insurance is primarily for the purpose of financial protection with a secondary aim of long-term savings.  Financial protection will become increasingly important as we transform to a high-income nation as the loss of the income of the breadwinner of the family due to his/her untimely demise or incapacity would have an even greater impact on the surviving family with the increase in income.

 

“Based on a study conducted by the University Kebangsaan Malaysia in early 2014, it was noted that the protection gap required by each member (for a family of 5 persons) is between RM150,000 and RM200,000 for a period of 5 years if the breadwinner passes away.

 

To achieve this aim, LIAM proposed that the tax deduction be made separately available for EPF contributions and life insurance premiums, i.e. RM6,000 tax relief for EPF contributions and a separate RM6,000 for life insurance premiums” added Mr Kwo.

 

LIAM has also proposed that the tax relief for medical and education insurance premiums to be increased from the current RM3,000 to RM6,000 as the current amount of tax relief is insufficient in most circumstances. 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. This amount is grossly insufficient and the Rakyat will feel the pinch even more with the increase in healthcare spending.

 

The Economic Transformation Programme (ETP) has set the objectives to increase the insurance penetration rate to 75% of the population by year 2020. Currently, the penetration rate of life insurance and takaful is at 54%.

 

“The life insurance industry plays a very important role in financial protection, financial accumulation and healthcare funding.  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 as our country progresses towards a developed nation,” added Mr Kwo.

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