Legal Tips

Income Tax & Life Insurance

Document Date: 09-May-2008

Here are some Frequently Asked Questions on the topic "Income Tax & Life Insurance":

1. Will the premiums which I pay for my life insurance policy qualify for income tax deductions?
2. Can a wife qualify for income tax deductions on the premiums she has paid on an insurance policy taken on the husband's life?
3. Will all my life insurance premiums paid this year qualify for income tax deductions even though the policy covers a period in the next year?
4. Are the monetary proceeds from a life insurance policy taxable as income tax?

1. Will the premiums which I pay for my life insurance policy qualify for income tax deductions?

   Yes, the premiums will qualify for income tax deductions subject to the following general conditions:

   (a) the policy must be on the taxpayer's life or his wife's life;

   (b) the amount of premiums to be deducted must not exceed 7% of the sum assured (excluding profits and bonuses);

   (c) the amount of premiums to be deducted together with any CPF contributions must not exceed S$5000; and

   (d) the policy must be issued by a life insurance company which has an office or branch in Singapore (this condition is not applicable to life policies issued before 10 Aug 1973).

   Such deductions are allowed from the assessable income in order to arrive at the chargeable income. The chargeable income is the amount of income that is subject to the applicable rate of tax.

2. Can a wife qualify for income tax deductions on the premiums she has paid on an insurance policy taken on the husband's life?

   No. The Income Tax Act presently allows the husband to claim deductions on premiums paid for an insurance policy taken on his wife's life but not vice versa.

3. Will all my life insurance premiums paid this year qualify for income tax deductions even though the policy covers a period in the next year?

   Yes, the tax deduction is allowed for the year in which the payment are made and not the period of insurance.

4. Are the monetary proceeds from a life insurance policy taxable as income tax?

   No, such proceeds are exempt from income tax as it is not considered income. However, such proceeds may be subject to estate duty if the proceeds were received from a life policy effected by the deceased person on his own life and for which premiums were paid by him/her. Estate Duty may be payable if the deceased policyholder died before 15 Feb 2008. [ See also Legal Tips on Estate Duty]