LIAM Proposing Increase Tax Relief For Life Insurance

The Life Insurance Association of Malaysia (LIAM) is proposing that the government increase the current limit of RM3,000 tax relief for life insurance (LI) premium to RM5,000 in the upcoming Budget 2021, which is a way to encourage Malaysians to plan for their needs for protection.

The increase in tax relief would put more money back into the rakyat’s pocket to relieve them of their financial burden and also to encourage them to have a better financial plan for the future. The current combined tax relief of RM3,000 for MEI premiums is actually insufficient in most circumstances.

For example, the cost of medical insurance itself for an average family (two adults and three children) is around RM2,500 per annum at the lower end, where this leaves only about RM500 per annum premium for savings towards the education of three children in this typical family.

In addition, LIAM hopes the government would allow Employees Provident Fund (EPF) members to utilise the EPF Account 2 to purchase LI, as well as medical and health insurance in order to provide better long-term protection and security to the fund’s contributors.

Life insurance provides financial coverage for the family in the event of a death or illness of the family breadwinner. By allowing members to purchase life insurance from Account 2, it will help the members to augment their EPF savings to provide for themselves and their family in times of need.

LIAM is also proposing the extension of insurance coverage to the bottom 40% (B40) household income group through the government’s Perlindungan Tenang initiative by providing a one-to-one subsidy for the premiums paid by this group. This would provide an opportunity for the B40 group to appreciate the importance of life insurance protection, particularly if the insured member or family receives a claim, and to continue with the insurance after the two-year period.

Lastly, LIAM is proposing a waiver to the service tax for group insurance schemes by encouraging higher take-up rates by the employers for the benefit of their employees.

Under the existing tax regime, the premiums for group insurance schemes are subject to the service tax of 6%, thus making it costlier in premiums which might not be affordable for some employers, especially the small and medium enterprises. By having more Malaysians covered under private group medical insurance, this will help to lessen the burden of the public healthcare system, from both financial and capacity angles.