GST On Life Insurance

Staying healthy will cost even more as medical insurance fees, charges and premiums, go up next month. Although life insurance is exempted from the Goods and Services Tax (GST), policyholders must pay at least 6% more for medical and health-related insurance coverage.

The National Association of Malaysian Life Insurance Fieldforce and Advisers has appealed to the Government to exempt “necessity policies” covering hospitalisation and critical illnesses from the GST. Otherwise, many may surrender their policies or lapse in their premium payment.

“GST will be an additional cost for individual policies that are coming up for renewal. If a family of five with a medical policy pay a total of RM7,500 per annum, the additional cost to them would amount to RM450 yearly.”

He said many prospective clients and those planning on topping up their existing policies had adopted a “wait-and-see” attitude. They want to gauge the GST impact on their finances first because the new tax applies not only to insurance but to most of their daily expenses,” Kho said.

He warned that it was crucial for policyholders to understand that GST would impact all traditional and investment-linked policies which had medical, critical illness or personal accident benefits attached. For traditional policies, the GST is imposed on the premium. For investment-linked policies, it is charged on the insurance charges. For investment-linked policies, insurance charges escalated with age because of higher insurance charges.

For example, at age 35, insurance charges for the medical benefit alone is about RM422. At age 65, it rises to almost RM2,500 – exceeding the RM1,176 annual premium paid for the medical coverage alone. Some policyholders above age 60 might pay up to RM5,000 in annual insurance charges.
With a 6% GST imposed on insurance charges, many senior citizens may potentially lose their coverage or need to top up premiums to sustain their coverage.

For investment-linked policies, the annual premium may not increase as the GST and insurance charges are deducted from the policy’s cash value, thus eroding the accumulated cash value meant for retirement, children’s education and sustaining future premiums.

You need to keep tabs on the cash value or you may wake up at age 60 without a retirement fund.
Majority of more than two million life insurance policy holders nationwide had investment-linked and traditional policies with attached medical coverage.

Life Insurance Association of Malaysia (LIAM), in a statement, said fees and charges imposed on investment-linked policies and critical illness, medical and health and personal accident premiums were subject to GST. LIAM advised all policyholders to contact their insurance companies to find out the amount payable from April 1.

General Insurance Association of Malaysia (PIAM) said policyholders were required to pay the additional 6% as all general insurance policies were subject to GST “unless the risks are located outside Malaysia”.