Home » tax in real life » Being over insured the true reason? Lies lies and more lies

Being over insured the true reason? Lies lies and more lies

Earlier in the year, Treasury announced that all insurance products paying either income or capital benefit in case of temporary or permanent disability, will henceforth be paid out as tax-free income or tax free capital protection (as the contributions will no longer qualify as a tax-deductible expense).

Immediately the informed understood that as of 1 march 2014, his or her disability cover or income protector’s benefit was overstated by as much as 40%, the marginal tax rate applicable to South African individual taxpayers.

Now suddenly on September 11th, SARS and Treasury were convinced that the implementation period was to short and the new rules are to be delayed by at least on year.

SARS and Treasury were hood winked, I respectfully submit.

The financial interest of a few LOA members about to loose lots of premiums, was considered more important than that of the ripped off thousands of members paying PPS, Sanlam, Old Mutual, Liberty, Momentum e.a. huge premiums.

For example dreaded disease benefits within life cover is far cheaper than disability cover for own profession. For a life cover pay out the dreaded health event ONLY must be confirmed and that is all, there is very little requirement (if any) to show permanent or short/long term loss of income. In some cases your policy value may drop but in other cases the future premium is waived and the full life cover restored.

Oh and that is what placed niche market providers at risk, as we would now all flock towards added value benefits found in other products where wo+men in dark rooms can’t manipulate and load premiums.

Tax benefit is no longer the driver, the value for money is the decision maker.

Value for money ….and suddenly all niche market product suppliers (of which PPS was probably the leader of the pact) immediately commenced the lobbying and convinced law makers they need more time to reduce the over insured position.

Really? Will it nor be possible to inform all members your income protector’s premium will drop by 40% and your benefit will drop by 40% as of March 1st 2014? Should you not agree with the once off adjustment send through your proposed reduction or contact your broker and update our records before mid February 2014.

You really want me to believe this is not possible in 2013? Yes it is possible but imagine the drop in income stream and the risk of huge resignations as we explore other non-niche products where hidden doctors and risk panels could not adjust your premium or load your cover, to increase fund and fund manager’s margins?

Read the Moneyweb statement on the topic at Proposals to the tax treatment of individual–based insurance policies to be delayed by a year

The lesson learnt? Never allow the tax law to benefit specific products, groups or philosophy. Tax must be neutral and as SA Bible Assoc was removed as tax benefactor overnight, so we need to remove life cover companies from our tax morality, today….not next year!!

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