Malaysia Budget 2007: Is your insurance qualified for tax relief?

Is the insurance policy you bought qualified for tax relief?
Do you know the Inland Revenue Board (IRB) provides guidelines to explain various criteria for insurance tax relief?
Do you understand IRB’s guidelines?


Tax relief for insurance under the Budget 2007 remains unchanged. As a revision, a taxpayer can enjoy a tax relied of up to RM6,000 for his combined contribution to EPF and life insurance, and a total of RM3,000 for medical and child education policy.


Life insurance

Examples of life insurance are whole life insurance and investment-linked insurance which give protection up to age 80, 90 or 100, endowment insurance which matures after certain year like 20 years, 25 years or at age 50, 55 or 60.
Tax relief for an individual’s life insurance is very clear cut. You pay the premium and you enjoy the tax relief.
But tax relief for life insurance bought by husband for wife, or wife for husband is quite confusing for many policy holders. If the husband is the payer, the insurance premium paid is qualified for tax relief under the husband’s name and vice verse.

The insurance premium paid by the husband or wife is commonly termed as payor benefit, payer benefit rider or spouse benefit rider.

In the situation where a husband doesn’t have any income, he can opt for combined assessment. In this case, whatever takaful or life insurance premium paid by the husband is considered paid by the wife. He is entitled for RM3, 000 of spouse relief.


Life insurance with medical benefits like critical illnesses

Based on the statement printed on the insurance premium certificate for tax relief issued to policy holders by a few major life insurance companies, if a policy holder would like to put this type of insurance under education or medical insurance category, only 20% or 60% of the total premium paid is eligible for tax relief.

Child education policy

Under the guidelines provided by the Inland Revenue Board (Circular No. 4/98), various criteria must be met by an education insurance to enjoy tax deduction, which are:

1) The beneficiary of the insurance must be the child, while the life assured can either be the parent or the child.
2) In the case the parent is the life assured, the nominee must be the child.
3) If the life assured is the child, the following conditions must be fulfilled:

a. A payer benefit rider on the payer’s life with the same duration as the basic insurance must be attached. In the event the payer (parent) passed away and/or is totally and permanently disabled, all future premiums will be waived.

b. The premium of payer benefit rider, whether is in addition to the basic premium or is bundled with the basic insurance, which is a single premium, will qualify for tax deduction.

c. If the payer of the education insurance does not qualify for the payer benefit rider, which means no payer benefit rider can be attached to the basic insurance, the premium paid for the basic insurance is NOT entitled to claim for a deduction.


4) For a takaful education insurance, the matured amount must be made a ‘hibah’ or gift to the child by the participant (parent).

5) For both conventional and takaful education insurance, the matured amount must be scheduled to take place when the child is between 13 and 25 years of age.


Medical insurance

1) The insurance coverage should be for a period of 12 months or more.

2) The medical insurance can be a rider or a stand-alone policy. If it is a
rider, only the rider’s premium are eligible for deduction.

3) If critical illnesses rider is attached to a basic insurance, the total amount of the rider’s premium is deductible.

4) In situation where critical illnesses rider is attached to a term insurance or personal accident insurance, only 60% of the total premium is qualified for tax deduction.

5) Premium for waiver benefit rider and travel medical expenses insurance are NOT tax deductible.

Understanding Malaysia Medical & Health Insurance (MHI)

There are various types of MHI in Malaysia.
Medical card insurance (also known as hospital & surgical insurance) , 36 critical illnesses protection and hospitalization income benefit are common MHI in Malaysia.

In this blog, I will focus on medical card insurance. In general, the major items cover under medical card insurance are hospitalisation expenses like Room & Board charges for a bed or intensive care unit; surgical related fees due to diseases and accidents while you are in the hospital; surgical fees without hospitalise; pre-hospitalisation treatment; post-hospitalisation treatment; and outpatient cancer and kidney dialysis treatments.

A plastic card with the size of a credit card will be issued to the medical card insurance holder once the insurance application is approved by the insurance company.

As far as I know, there are three types of medical card insurance, namely:
a) Standalone medical card insurance
b) Medical card insurance attached to investment-linked insurance
c) Medical card insurance attached to term life insurance


a) Standalone medical card insurance

Like its name, this type of medical card is an independent insurance and does not attach to other types of insurance. Almost all general insurance companies and a few life insurance companies offer this type of medical card insurance.

From policy contract’s point of view, some policies are guaranteed renewable, some are conditional guaranteed renewable and the rest are yearly renewable. The details on renewable issue will be discussed in future article.

Advantage: No other insurance premium like death or total & permanent disability premium will be incurred. Therefore, your insurance premium commitment is lesser.

Disadvantage: You will have to continue paying the annual premium even when you are diagnosed to have one of the 36 critical illnesses or become total & permanent disabled.



b) Medical card insurance attached to investment-linked insurance

This type of medical card insurance is only offered by life insurance companies. It is attached to a whole life investment-linked insurance policy as a supplementary benefit.

The minimum annual premium for an investment-linked insurance is RM1, 200 or RM1, 800 depending on the insurance companies practice.

The insurance premium for medical card insurance is included in the annual premium.
Many insurance buyers overlook this insurance premium. Find out the insurance premium for the medical card insurance before putting your signature on the proposal form.

Advantage: Most insurance companies will waive the future premium of medical card insurance if the card holder is diagnosed to have one the 36 critical illness or become total & permanent disabled.

Disadvantage: If the main policy lapses, the medical card insurance will lapse too.


c) Medical card insurance attached to term life insurance

This type of medical card insurance is only offered by life insurance companies. It is attached to a term life insurance policy as a supplementary benefit.

Term insurance is also known as temporary life insurance. A term insurance usually covers a minimal amount of sum assured like RM5,000 , RM10,000 or RM20,000.

The period of coverage, typically 10 years, 20 years, until age 60, 65 or 70.

Advantage: You get certain amount of life insurance coverage.

Disadvantage: When the period of coverage expires, the medical card insurance expires too.


Conclusion:

All these medical card insurance have their advantages and disadvantages. My opinions are:

If you already have sufficient life insurance, and you are only looking for a medical card insurance, then you might consider standalone type of medical card insurance.

If you plan to top-up your life insurance coverage now, at the same time looking for medical card insurance, then you can consider medical card insurance which is attached to investment-linked insurance.

If you need an extra life insurance coverage, and at the same time looking for medical card insurance offered by life insurance companies, then you can go for medical card insurance which is attached to term life insurance.

Medical & Health Insurance in Malaysia

Topic: How to solve complaints about over-charged medical fees

I refer to the newspaper headline of Malaysia's leading Chinese newspaper, Sin Chew Jit Poh dated 21 June 2006, "The total claim amount paid by insurance companies are not based on the medical bill, but the market rate".

The interviewee is the CEO of Pacific Insurance Berhad. The newpaper report quoted medical treatment cost caused by Denggi fever as an example. He said if normal hospitals charge around RM3,500 for Denggi fever treatment, however the hospital that the medical card insurance holder admitted is charging RM8,000 for the same treatment, the insurance will only pay RM3,500 to him.

If the interviewee is referring to the Bank Negara Malaysia guideline on "customary and reasonable charges", then it is very difficult for medical card insurance holders to understand it.

My personal opinions in solving the over-charged dispute are:

1) Let the public and insurance agent have access to the guidelines by Ministry of Health
The Fee Schedule is the guidelines set by government to supervise the medical treatment charges by private doctors and private hospitals.

As far as I concern, insurance companies are using this Schedule as one of the guides to determine their medical card insurance benefits and premium rates.

I called Ministry of Health few weeks ago and found out this Schedule costs RM100 per copy. It is too expensive. Furthermore, I cannot find it in major bookstores in Kuala Lumpur.

Ministry of Health should post it on her website, so that public can view it, especially for patients before undergoing an operation and insurance agent. When these parties have certain knowledge on the estimated medical costs on certain medical treatment, the over-charge complaints by patients can be reduced.

2) Booklets or brochures to explain medical costs

Ministry of Health can come out with booklets or brochures to show the range of medical costs for certain common diseases like Denggi fever, appendix operation and angioplasty, etc. By educating the public through these booklets, consumers will know their rights better.

Conclusion:

I believe with the efforts from all parties involved, complaints by patients about over-charged on medical treatment can be solved.