[GST] How it affects our Life Insurance policy? (March 2015)

Everyone cannot runaway from Goods and Services Tax (GST) which is going to be implemented starting 1st April 2015. How about our life insurance policy? How is it going to affects our policy then? All types of coverage also subject to GST?

Unfortunately, most of our life insurance policy coverage also will be subject to GST charges. It depends on what type of life insurance policy you mention. It could be pure life, endowment, child education, medical and health, personal accident or annuity plans.

In summary, below table shows you what type of coverage is subject to GST:

Actually, how to calculate the additional GST charges?

The GST charges will imposed on those insurance charges and all other policy fees as mentioned above. Example, for standalone medical card, if the annual premium is RM1,000, then the revised premium including GST would be RM1,060 (RM1,000 + RM60 GST).

But, it's not so straight-forward for investment-linked plan (ILP) which having other non-life riders attached also. If the monthly premium is RM100, many people think that the revised premium would be RM106. Is it correct? NO. The RM100 is the premium you're paying, but the insurance costs is forms a portion of it only. For ILP, you have to determine how much is the insurance cost for each type of coverage, then only you can calculate how much is GST being charge.

Are there any changes to my insurance premium payment?

If your coverage is subject to GST, it definitely will charge you for it. But, whether should you pay more or not, it depends on what type of policy are you having. If it was a standalone medical card or non-investment link policy, you are required to pay more each time you pay your premium. Please ensure the correct premium amount first before paying. If the premium is insufficient, your policy may lapsed or being terminated. Please take note.

What if my policy is an investment-linked policy (ILP)?

If this is the case, GST won't affect your premium, provided that there is sufficient funds for this additional deduction. Meaning, instead of paying extra premium, the additional GST charges will actually eat into your investment funds value. Anyway, insurance company will advise you to top-up on the investment portion of your ILP, should you need to do so.

Minimum Guaranteed Returns for Investment-Linked Policy? Good or Bad?

Published on newspaper recently, it was reported that sources said NAMLIFA had highlighted the need to have a minimum guaranteed sum to protect policy holders of ILPs. Is it work-able? If yes, how to work it out?

Everyone knows what is Investment-Linked Plan (ILP)?

Basically, an ILP have both protection and investment element inside one plan. It gives the flexibility to policy holders to adjust the benefits and investment part. Unlike traditional life policies, how much policy value in an ILPs depends on the performance of the underlying funds being chosen. Since policy holder is the one who shoulder the risk, the ILPs premium tends to be cheaper. The key disadvantage of ILPs was the return was not guaranteed.

How about a Minimum Guaranteed Returns?

To eliminate the investment risk associated of an ILP, NAMLIFA has proposed to the central bank to have such minimum guaranteed return. And, the minimum guaranteed return they're looking at is between current fixed deposit and EPF rate (3% - 6%).

How to guaranteed the return?

After figuring out, maybe there is two ways:

1. The ILP funds adjust their asset allocation to match the minimum guaranteed returns. Just like EPF who guaranteed a minimum of 2.5% annual return, EPF is placing 50-60% of its funds into very safe instruments such as MGS and Government bonds.
   
   
2. Charge higher premium to compensate the insurer. This is because it's a liability to the insurers to guaranteed certain return. In the market, some insurers are currently imposing a "guaranteed charge" on policies which have guaranteed return.

Good or Bad?

Given the two possible ways shown above to guaranteed certain return, we should realized that everything come at a cost. The question is who is going to bear the cost of guaranteed. The intention behind is good, but the outcome may not be good. Currently, policy holder chose traditional policies if they want some guaranteed return. Otherwise, they can choose ILPs because of its flexibility and cheaper premium.

That's why, it's advisable to consult a financial planner before buying a plan. Thanks.

MH17 : Insurance Cover or Not ?

First of all, condolences to all family members of passengers and crew members boarding the ill-fated flight MH17. This is a tragic all of us also don't want or expecting it to happen. Justice must be found and those responsible for this tragedy must be punished.

Come back to the question.

Does this MH17 event covered by insurance ?

For MH370 flight which went missing few months ago, insurance companies were already paying out monies to beneficiaries of those passengers involved within one month. However, this may not be the case for MH17, said industry practitioners as reported in China Press Daily.

Unlike MH370 which was still missing, what causing the mishap of MH17 was due to violence or war. According to insurance industry experts, if MH17 was confirmed being shot down by missiles, insurance companies can discharge their responsibilities to pay the claim. Because under the insurance contract's terms and conditions, whatever risks related to war will be excluded. Is this true ?

Let's have a look at the below two examples snapshot from two different policies:

Hmmm... If this is the case, all insurance claims, whether life insurance or personal accident or travel insurance coverage, will not be honored by insurers. Then, the decision made by insurers will be based on how kind or generous or sympathy they are. We believe all Malaysian insurers are kind enough to help. Correct ?

Personal Income Tax for YA2012

Finance Malaysia hopes this article doesn't come late to give you some info on Personal Income Tax filling for year of assessment 2012. Maybe due to the general election, which had diverts our attention lately. Lol. Anyway, do remember to file your income tax before 30th April oh!!!

Well, here is the list of Personal Tax Relief for YA2012. And, I would like to highlight to you, in RED color words, some changes/differences from previous year.

Personal Tax Relief for YA2012

• Item No.11:
  This would replace Item 10 from YA2012-YA2017 with higher amount of RM6,000
• Item No.23:
  Private Retirement Scheme (PRS) is the NEW item which can help you reduce tax further with additional RM3,000 tax relief from YA2012-YA2021. As such, Item No.22 would be replaced until after YA2021.

All other items remained the same. Do reduce your tax payable by maximizing the tax relief amount. Remember to keep a record and file it properly. Happy tax filling. Thanks.

Blue color: Tax relief that we can adjust easily in our daily life

Green color: Tax relief for property not rented out with S&P signed between 10/03/09-31/12/10

Light red color: Tax relief related to child

Yellow color: Tax relief related to life insurance premium

Why TUNE INSURANCE is Out of Tune?

Every wonder why we didn't cover the IPO for Tune Ins ? Other than CNY mood, it's because of the unexciting part of this new stock. Why? Please read on...

Tune Ins Holdings Sdn Bhd (TIH) operates 2 core businesses. First, it provides online insurance where insurance products are sold as part of the customer’s online booking process with their partners namely AirAsia, Tune Hotels and AirAsia Expedia. TIH also operates a general insurance business, through 83.26% owned subsidiary - TIMB.

Why invest in Tune Insurance Holdings?

1. Wide and cost effective distribution channels
2. Provide ease in buying coverage
3. Exclusive partnership with AirAsia
4. Ability to ride on AirAsia’s robust growth
5. Additional revenue and cost synergies from TIMB
6. Robust industry prospects

However, some of the above investing reasons had also became the disadvantages of TIH. It's reliant on AirAsia business is too important. TIH's success is very much depends on the success of AirAsia businesses, and because of its relationship with AirAsia, TIH would face difficulties in forging a partnership with other airline.

Meanwhile, for TIH domestic general insurance, stiff competition and the implementation of tighter capital requirement for insurance companies may affect its operations. It's in the industry where size does matter. I don't think TIH can cross-sell it's online clients easily on other general insurance, such as fire and car insurance.

Forecast and Valuation given by TA Securities Research

Going forward, we believe TIH’s gross earned premiums will be closely linked to increase in passengers carried on AirAsia. We estimate AirAsia’s passengers carried to increase at an encouraging pace of around 15% per annum. Tagging a 20% to industry’s targeted PER of 10x, we fairly value TIH at RM1.00.

Fair Value RM 1.00 ???

Hey dude, the IPO price is RM1.35 !!!

Why All of Us Must Care about 1Care Malaysia?

Heard about 1Care Malaysia healthcare plan? If no, then you must read this article thoroughly word by word. Because the the proposed healthcare system will drastically change the way we seek for treatment in the future. The main issue was "Is it viable to implement 1Care?".

Well, the intention is good for our community. The plan had a very beautiful definition as below:

But...

Concern is always there whenever Government want to implement something and that thing is managed solely by Government. Experience? Got (bad experience). Money? Got, but already drained somewhere (normally). You can't prevent Malaysians from worrying, especially when 1Care touches each and everyone of us for life.

What are the concerns?

1. Each person in different sector have different risk level. How to determine the amount of contributions of each contributor?
   
   
2. Subsequently, how to determine the benefits package each individual entitled to? If the benefits was based on the amount of contribution, then, our existing insurance system already functioning very well now.
   
   
3. Then, you can say that it was community-rated, not risk-rated. That's mean rich are subsidizing the poor, economically active to passive system. But, doesn't rich already pay taxes to government to subsidize them currently?
   
   
4. Level of services of hospitals and choices of hospitals. Can we seek treatment at any hospital, be it general or private hospitals? If not, it will again limit our choice.
   
   
5. Choice? Emm. The proposed 1Care is being made compulsory to all employees and employers to contribute (except government servants). Wait!!! Does this mean that private sector is subsidizing public sector?
   
   
6. A government agency was being set up to manage the pool of money collected from all of us. OMG!!! We are talking billions of ringgit per year. It's a huge huge huge amount which could bought over CIMB bank!!!

Once 1Care was implemented, the following sector will suffer:

1. Private sector. If the said 10% mandatory contribution by each employee is true, most salary based person will switch to personal loan, I think.
   
   
2. Retailers will suffer badly from less disposable income after the mandatory deduction of salary. No more 25% drop in car sales anymore. It's probably 90%.
   
   
3. Property market will slump. Don't forget that our loan applications now is based on net salary, which means deducting your 11% EPF + 10% 1Care + Socso + Tax. How much left?
   
   
4. Private healthcare system. Private hospitals have to lobby smartly to get involved in 1Care system to remain in business. Monopoly game means you have to "pay" more? Good Luck.
   
   
5. Private insurance companies and its agents. A big chunk of their medical policies will be terminated and a big chunk of premiums will flow to the new set up government agency. Thousands of agents will struggle to survive.

Then, why Government proposing 1Care Malaysia? Emm. I got many input from friends and professionals and below could be the 3 reasons behind 1Care:

1. Diversifying the problems of public healthcare system to private healthcare, so that private healthcare was forced to collaborate.
   
   
2. Reducing Government's burden, thus reducing budget deficit, by imposing mandatory contribution from everyone. For us, it's just like another form of income tax.
   
   
3. Hijacking the lucrative insurance business which was dominated by foreign companies (etc. Great Eastern, Allianz, AIA, Prudential, ING...) especially on medical policies. With 1Care, it could effectively grab the market share from them, entrusting government agency as the undisputed largest insurance company in Malaysia.

Finance Malaysia blog is just voicing out the concerns of general public for betterment of Malaysia going forward. Readers were welcome to give comment or feedback. Thanks.

Tax Relief from Life Insurance YOU must know

Want to get more tax saving? Please read on…

Although this article is somewhat considered late for individual tax-payers this year, this could be useful next year anyway. When you buy insurance, besides getting the comprehensive protection and a worthwhile investment that will keep you financially stable should the unexpected happen, one more feature are very important for every tax payers.

Under Malaysian Income Tax Act 1967, you will also enjoy tax relief benefits provided. These tax incentives are given by Malaysia government to encourage us to own a protection plan, thus, inducing a better life planning among Malaysians.

Oppsss... actually this can and that one is cannot?

So, what are the tax relief?

• Premiums on life insurance and/or deferred annuities.
• Premiums on education or medical benefits.

How much tax relief?

- Up to Rm6,000 for life insurance premiums and EPF contributions.

- Up to Rm3,000 for medical and education policies premiums.

You may qualify for tax relief under Education policies if:

• Beneficiary is the child.
• The life assured is the parent and the child is the nominee.
• Maturity amount must be payable when your child is between the ages of 14 to 25 years.

Or,

• The life assured is the child.
• Parent is the proposer.
• Payer benefit is attached for the full term.
• Maturity amount must be payable when your child is between the ages of 14 to 25 years.

You may qualify for tax relief under Medical policies if:

• Expenses are related to medical treatment resulting from a disease, accident or disability.
• The policy must be for coverage of 12 months or more.
• Both standalone policies and riders qualify, but if it is a rider, only the rider premium qualifies for deduction.

Common Mis-understanding:

How do I know how much relief  can I deduct every year?

Every year, your insurer will send you a statement for tax relief purpose and you just need to fill in the entitlement amount according to different category of relief. You may request from your insurance company or agent, if you receive it by mail.

My premium is Rm2,400 . Why the statement only shows Rm1,800?

Tax deductible is based on the actual premiums paid for that particular year. In this case, you only paid Rm1,800 for that year of assessment.

My premium is Rm2,400. Why I can’t relief full amount?

This may due to administration fees, or certain riders which does not qualify for any relief.

If I buy insurance for my parents, can I get the relief?

NO. Your parents can get deductions if they bought insurance for their own. However, you may claim for your parents’ medical expenses of up to Rm5,000.

Not enough?

From 2010 onwards, premium on annuity scheme or additional premium paid on existing annuity scheme is qualify for another Rm1,000 relief. Amount exceeding Rm1,000 can be claimed together with life insurance premium category.

Since the above criteria may change from time to time by government, please seek advice from your own tax consultant if needed. Thanks.