Budget 2019: Separation of tax relief good move, says LIAM

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·         The Star- Friday, 2 Nov 2018

LIAM president Anusha Thavarajah said on Friday the insurance body supported the separation into RM 4,000 for EPF and RM 3,000 for life insurance/takaful.

KUALA LUMPUR: The Life Insurance Association of Malaysia (LIAM) welcomes the tax relief on the separation of EPF and the life insurance/takaful as proposed by the government.

LIAM president Anusha Thavarajah said on Friday the insurance body supported the separation into RM 4,000 for EPF and RM 3,000 for life insurance/takaful.

Previously, tax relief was RM 6,000 for EPF and life insurance/takaful combined.

“This tax relief separation, we believe, will give life insurance the right focus and encourage individuals to purchase life insurance as a form of protection that is critical for all Malaysians. 

 “The savings in the EPF will meet individuals’ retirement needs while life insurance will ensure that the family is financially protected if the breadwinner meets with an unfortunate event,” she said.

Anusha said based on Bank Negara Malaysia's 2016 BNM Financial Stability and Payment Systems Report, the penetration rate of insurance and takaful was about 55% for the past five years.

Eliminating multiple ownership of life insurance/takaful policies, this figure reduces to 35% of population insured.

Out of this, only 4% of households in the lower income group has some form of life insurance/takaful cover.

“Therefore, the separation of the EPF and life insurance tax relief would certainly benefit the rakyat by encouraging them to buy life insurance for themselves and their loved ones and help to increase Malaysia’s insured population to 75%,” she said.

Anusha also said LIAM thanked the government for waiving the stamp duty for the purchase of Perlindungan Tenang products.

“This is extremely encouraging as Perlindungan Tenang products have been specially developed to incentivise the youth, young families and B40 household segment to purchase life insurance,” it said.

The premiums for Perlindungan Tenang products has been specially priced at premiums from as low as RM3 per month.

“We welcome the public private partnership announced by the Government via the setting up of a Critical Illness Fund called Dana Perlindungan Kesihatan Nasional B40,” she said.

Finance Minister Lim Guan Eng, had in his Budget speech, emphasised insurance and takaful could act as a safety net by providing financial support and enabling households to get back on their feet especially for the lower income groups.

“In partnership with the private insurance industry, the Government will pilot a national B40 Health Protection Fund to provide free protection against top 4 critical illness for up to RM8,000 and up to 14 days of hospitalisation income cover at RM50 per day starting Jan 1, 2019. In other words, hospitalisation income of RM700 per annum is available.

Great Eastern Life Insurance has agreed to contribute the initial seed funding of RM2bil to this Fund to be managed by Bank Negara Malaysia. 

Lim said the government expects the fund size to grow with more partnership and contributions with other insurance companies.

“This is a big step for Malaysia because for the very first time, together with the Employees Provident Fund and the Social Security Organisation, we are starting a more comprehensive social welfare protection coverage, particularly for the middle- and lower-income groups,” he said.

Identifying Insurance & Takaful Needs of Business Owners

In identifying insurance and takaful needs for business owners we need to be aware that in Malaysia, there are now four basic business organizations. They are sole-proprietorships, general partnerships, limited liability partnerships (introduced in 2012) and of course companies.

The death of owners of each of these businesses will give rise to several types of specific challenges to the families, as well as their fellow owners in the case of partnerships and companies.

Insurance and takaful solutions, carefully planned and arranged, can definitely minimise these problems and difficulties which will affect all the concerned parties.

There are 4 main objectives in these types of arrangements and they are as follows:

1. To provide for the continuity of the businesses;
2. To minimise the loss of a “Key-Person” in the business organisation (this is most commonly seen in limited companies);
3. To avoid partners of general partnerships and directors of limited companies becoming liable for the debts of their businesses upon the death of a specific individuals; and
4. To provide incentives to directors or selected individual in providing “benefits-in kind”.

To promote these insurance and takaful solutions to business owners so that suitable funds are made available, intermediaries must know the:

1. Appropriate approach and presentation skills, as well as the relevant knowledge of business organizations and their structures;
2. Legal and estate planning principles involved upon the death of business owners;
3. Tax implications involved, both of the premiums or contributions, as well as the death claims or benefits payable in insurance and takaful contracts;
4. Specific agreements (prepared by lawyers) among the relevant parties to be arranged when necessary.

Detailed knowledge and study of the above would require two to four-day interactive workshop sessions. It is pleasing to know that several insurance companies, takaful operators, educational institutions and organisations in the industry are placing greater emphasis on such types of trainings and making it available to intermediaries.

Nominations in Life Insurance and Family Takaful Contracts

The legal principles that are applicable to the issues of nominations and the payment of claims are regulated by the Financial Services Act (‘FSA’) 2013 and the Islamic Financial Services Act (‘IFSA’) 2013. These principles also apply to Personal Accident contracts. One of the more common issues when it comes to the payment of claims is whether the named nominee is entitled to keep the moneys paid out or whether they are under a duty to distribute to others. 

The following are some fundamental aspects of nominations and claims which all those involved in the industry are recommended to be familiar with:

1. If there is a valid death claim, the named nominee must be paid the full proceeds by the insurer or  operator.

2. The word ‘nominee’ is used when a policy owner buys a policy on his own life and appoints the named nominee to receive the death claim proceeds. Similarly, this principle applies to a participant in a takaful contract.

3. Insurance companies and takaful operators require the relationship between the policy owner and the nominee to be stated in the contract, but this is not a requirement by the FSA or IFSA.

4. Although it is routine for the Claims Departments to request for ‘proof of relationship’ between the policy owner and the nominee, a claim cannot be denied or withheld merely because the claimant cannot provide this ‘proof’.

5. Appointing a person as a nominee, has nothing to do with insurable interest, as the latter is a requirement only when a person buys an insurance or takaful contract on the life of another.

6. Payment of death claim proceeds to nominees must be noted as a ‘two-stage process’. 

     i) Firstly, it is for the insurer or operator to pay out the claim to the nominee.

    ii) Secondly, the nominee who receives the moneys or benefits may sometimes keep the             moneys for himself and in some situations the law imposes a duty on the nominee to              distribute them to others. 

7. If the nominee, upon receiving the death claim moneys has a right to keep the moneys for himself, he is deemed to be the ‘beneficiary’. This is seen in a life insurance trust policy or in the case of a conditional hibah in a takaful contract.

8. If the nominee has a duty by law to distribute the money to others, he is deemed to be the ‘executor’. This happens in circumstances when the nominee is one who is named in a ‘non-trust’ policy, whereby the moneys have to be distributed according to the instructions set out in a Will or as per the Distribution Act 1958. For Muslim participants of takaful contracts, the executor has to distribute the benefits in accordance with the Faraid rules.

My thoughts on Success and the Whole-Person Concept

Ideas and definition of success

When talking about success, one must look into the various aspects of our lives and this is summarised in the well-known principle of the “Whole Person” concept. An individual who chooses any one of these various aspects of our daily life and makes a decision to excel in it, is on the way to becoming a success. In this pursuit, one must always keep the other aspects of one’s life in perspective and balance. One cannot neglect or ignore any one of them. To cite an example, a man who earns a high level of income (financial) cannot be considered successful if in the process, he has to neglect his family or health (physical).

Principles to observe to achieve success

Although living a balanced life-style is very important, it is also necessary that we should have one single dominant goal at any one “period of time” in our lives. This goal must be more important than our other aspirations at “this” particular phase of our life. At a later period of our life and after having achieved the required level of success in our chosen goal, we may choose another goal which may be totally different from our earlier choice. A common example would be a young person who has just begun his working career, when the early years may be devoted to achieving his financial goals for himself and his family. Having reached a certain level of income, he may choose to further his studies (mental development). Having changed his dominant goals, he will have to put in more effort, time and energy to succeed in his studies at this stage of this life.

In the pursuit of our goals, we must be passionate about them. Human beings are motivated by emotions rather than logic. As a consequence, if we can harness our positive emotions and become passionate about our chosen goals, it will be far easier to achieve them. This principle is understood only by a few and should be taught and highlighted in self-help seminars and workshops. It is definitely a very important ingredient in the search of our own success.

Nominations & Claims - My Latest Book Is Now Available

Published in August 2018, this Handbook is a useful guide for all those involved in the Insurance & Takaful Industry. The book focuses on Schedule 10 of both the FSA and IFSA 2013 and and the information is presented in an "easy to understand" Q and A style. It is intended to be a guide to all and may be used as a training handbook for this subject.

The book is priced at RM 45.00 per copy. Please email for inquiries or to place your orders! 

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