Life insurance and income protection policies are popular among the members of the Sub-Continent community, although many of them often overlook the tax implications on claims and other benefits.
The premium paid on “Income Protection Insurance” is tax deductible and hence this can be claimed 100% as expenditure, even by wage earners.
If you were to make claim on this type of insurance, you will generally get 75% of your pre-disability income paid on a monthly basis before tax. However, if you receive sickness benefit or ACC, the amount of your claim may be reduced, although this may not be the case with Mortgage Repayment Insurance.
Lower ACC levy
ACC covers you for the loss of income and medical expenses due to accidents. Many people also take Income Protection Insurance, thereby duplicating the cover. However, if you are self-employed, you can reduce your ACC levies by seeking ACC Cover Plus Extra, which would enable you to set a lower amount of cover.
Insurance Tax?
Taking life cover under your company name may seem good for tax deductibility of the premiums but this may also mean tax payment on claims. Such insurance may not only mean high premium but also extended cover, which would in turn increase the premium level. A No-Tax Deductible cover under your personal name may be a more cost-effective option.
When taking income protection for a business, it is also important to be aware of the proof of income that would be required while making a claim. Indemnity type policies require proof of income, while filing a claim. This could be a challenge for many self- employed people. You could consider an agreed-type cover or business overheads insurance as an alternative.
Fringe Benefit Tax
If you own a business and run your personal insurance through the business as expenses, you will probably be liable for Fringe Benefit Tax. It is important to check how much this might be with your accountant.
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Some Key Points Income Protection Insurance is tax deductable even if you are on salary Acc Cover Plus Extra avoids duplicating cover for accidents Any claim by a business may also be liable for tax Ask your accountant about insurance cover A good insurance broker can also help |
Hamish Patel is an Insurance And Mortgage Adviser for mortgagesonline.co.nz and can be contacted on (09) 6254693. Email: hamish@monline.co.nz The above should be taken only as a guideline and not as specific advice. A full disclosure statement is available on request.
