Hi,

I'm looking for feedbacks (disagreements welcomed) on the idea of saving tax by buying investment-linked insurance.

In an annual individual tax assessment for non-public servant, we are eligible for the following tax relief:

- Life insurance premium (Restricted to RM3,000)
- Education and medical insurance (INCLUDING not through salary deduction, restricted to RM3,000)

Let's say I'm in the tax bracket of 21%.

Case A

I max out the life and medical insurance contribution using investment-linked insurance:
- I pay RM6,000 in cash on insurance annually
- In return, I save a potential of RM6,000 * 0.21 = RM1,260 of tax annually
- Even when the insurance premium is expensive, most of the premium paid will become "cash value" that accumulates into the future (subject to market condition), which can be used to offset the increasing cost of insurance.

Remark: I pay less tax + am able to save for the future.

Case B

I choose to buy cheaper term life and medical insurance (roughly ~RM100 per month in total at my age):
- I pay RM1,200 in cash on insurance annually
- I save RM4,800 compared to Case A, but they are taxed at RM4,800 * 0.21 = RM1,008
- I have spare cash of RM4,800 - RM1,008 = RM3,792

Remark: I have cash in my pocket, but also a sum of tax has to be paid for them.

Thoughts

In Case B, even if I were to invest the spare cash of RM3,792, I presume it will have to do very well to offset the annual tax payment of RM1,008. In contrast to Case A, all the premium payments, less cost of insurance, will be invested (without tax) into the insurer's fund.

What are the pros and cons in each case?

Insurance should only be purchased as a protection, and not for investment/saving/tax reduction, but this scenario really pique my curiosity.

Invenstment portion is not deductible

My current investment-linked insurance premium is RM265 per month, in a year that's RM3,180.

From my insurance annual statement, the total premium is split to pay life (30%) and medical (70%).

But yes, the investment premium is RM0.

Even in this case, the premium paid is still contributing to its cash value (i believe).

If there is no tax saving on this investment portion, ...
What if the saving you can make if you did not buy ilp but just conventional life and medical plan without the investment linked?
That "saving" if put into normal investment like prs, epf, self contribution, sspn, ....can have tax relief saving and the end results may be even more than what that investment portion of that ilp generate?

hi MUM,

That is possible too, question is that, the cash that goes into the normal investment e.g. unit trust, shares, properties (assuming prs and epf are also maxed out for tax relief) are taxable.

whereas if the same amount of cash is "invested" into life/medical insurance, that would exempt it from being taxed.

from saving standpoint, is it avisable to max out all tax relief (prs, epf, insurance) before venturing into the other types of saving or investment?

Do not spend more than just for tax relief. The excess money rather than use it for insurance is better serve dumping into FD/EPF or learn to invest on your own.

This is very genius indeed, I found that my 3.2k premium paid for ILP, about 3k are tax deductible:



But upon a closer look, I am being charged RM110+- every month, effectively bringing down 40% of money I paid:



Verdict: so not even tax savings of 21% is helpful here


This post has been edited by cklimm: Dec 5 2022, 07:43 PM

TS, please continue with your post here https://forum.lowyat.net/topic/5096196