One of the main goals of Bank Negara’s concept paper on the insurance industry, which is still at its consultative stage, is to raise the life insurance and family takaful penetration rate - currently at 54%, to 75% by 2020.
“Unlike the practice in Singapore and other countries, where life insurance on the whole is exempted from GST, in Malaysia only the basic life insurance policy is exempted but the rider plans that complement the policy is taxable.
The main riders include medical insurance, personal accident and critical illness coverage on the life insurance policy,” Kho said.
“By imposing such tax, a consumer who has a life policy could end up paying higher premiums. Alternatively, there could see a “knock-off” on the cash value entitlement, which the policy has generated over time.
This affects the long-term sustainability of the policy, which is one of the objectives in the concept paper to safeguard the interest of consumers.
“Namlifa is concerned that if the sustainability is affected, this may result in a high possibility of lapses of policies. Higher cost and reduced cash value may deter the public from buying insurance. Furthermore, the imposition of GST is not only for new life policies but also applies to existing ones as well,” he added.
According to Kho, riders in investment-linked and life policies should not be subject to GST as they are “incidentals” to the basic life policy. Furthermore, he said unlike general insurance, life insurance is for long term protection. He said exempting medical insurance from GST would help reduce the Government’s healthcare expenditure and at the same time, enable Malaysians to own personal medical insurance for better health care going forward.
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