Making the most of your tax deduction
It's that time of the year again folks!. No, not Christmas or New Year festivities but some thing much more challenging like how to beat the tax man to your hard earned money. In fact, the Revenue Department has been quite generous lately. Tax deduction on life insurance premium has been increased from Baht 10,000 per year to Baht 50,000. Although, this may not sound very much for those few lucky brokers and investment bankers with multi-million Baht bonuses this year, but this is something that should not be overlooked. After all, it's not very often that we get a free lunch from the tax man!
Moreover, life insurance is an indispensable part of one's overall wealth management. Those of you without a life insurance policy should think of it as something that one buys but hope not to use. In the previous issues of Money & Wealth, we have covered the topic of life insurance quite extensively ranging from how much life cover should one buy to the various types of policies to suit individual needs. So in this issue we shall deal with the "nuts & bolts" of how much tax savings can be had from smart use of life insurance.
As you can see from the above examples, it's a win-win situation. Even for those of you who already have a life policy, as a rule of thumb, life insurance premium should not exceed 10% of your income and if you can afford it you should aim to fully utilize the maximum tax deduction limit of Baht 50,000 per annum. After all, it's like a free gift from the tax man and it would be a shame to waste it.
Now that we have shown you much money you can save from tax deduction, the next step is shop around for the most suitable policy. Here again, we have done some preliminary home work for you by selecting from 6 of the largest insurance companies in terms of market share. As I have often said so many times before and I will reiterate again that one should keep insurance and investing separate. Therefore, one should buy life insurance like one would buy a car insurance, whereby one just pay the premium on an annual basis and aim for maximum coverage that one can afford. Of course, your insurance sale people will try to sell you those policies with savings components attached but believe me, there are better places to invest your money i.e. through mutual funds and most important of all there's no need to pay hefty sale commissions.
By using an example of healthy male and female in his and her 40s and assuming that annual premium is Baht 50,000. So what will you get for your Baht 50,000 a year? Please see that table below:-
Term Life Policy: 20 Years means that the coverage period is 20 years during which time there's no dividend pay back and your premium shall be fixed for 20 years.
Whole Life Policy: 20/90 Years means that the coverage period is for your whole life or until you are 90 years of age but you only pay premium for 20 years. For example, if you are 40 years old, you pay the premium until you are 60 then you can stop but the policy shall cover you until you are 90 years of age.
Kindly note that whole life policy is more expensive than term life policy but then again the coverage is longer too. Which one is better really depends on your needs. If you need relative high sum insured then term life is better but if you need long term coverage then whole life policy may be more suitable.
In addition to the basic life coverage, there are optional extras! Just like one would be offered when buying a car. Accidental cover, medical etc. For more information just ask your insurance sale people, they shall be more than happy to fill you in on all the details. It is also interesting to note that the insurance premium for a man is almost twice as expensive as a women but medical coverage premium is more expensive if you are a woman.