KUCHING: The Life Insurance Association of Malaysia (LIAM) wishes to reiterate its wish list to promote financial planning and create awareness on the importance of financial protection among the rakyat.
According to LIAM, it is pertinent for all Malaysians to do proper financial planning as it helps them to prepare for their daily needs as well as for ‘life’s unexpected changes in the future’.
“More Malaysians nowadays have acknowledged the importance of Life insurance as a financial security for protection and savings.
“It provides funds for the beloved family in the event of one?s untimely demise, total and permanent disablement or occurrence of critical illnesses. It is also a powerful tool for setting aside regularly a certain amount to meet future financial needs such as education and retirement funds”, said Toi See Jong, president of LIAM in a statement.
However, the current tax incentive system does not differentiate the two important elements of financial planning, namely savings and protection. EPF savings serve the purpose of meeting long-term saving needs whereas life insurance is primarily for the purpose of financial protection with a secondary aim of long-term savings.
At the moment RM6,000 tax relief on combined EPF contributions and life insurance premiums is given to the Rakyat.
In layman’s term, with rising wage level, the EPF contributions have taken up a substantial portion of the RM6,000, leaving an ever-diminishing amount left to be claimed as tax relief on insurance premiums.
A separate tax relief would put more money back into the pocket of the Rakyat to relieve them off their financial burden and also to encourage them to have a better financial plan for the future.
Having said that, Rakyat will become more Self-Responsible for Financial Planning and this will further improve the Insurance Penetration Rate in line with the ETP’s objective to insure most of the population or 75 per cent by 2020.
The current penetration rate is 55.6 per cent which means almost half of the population is not covered with insurance protection.
A study conducted by LIAM and UKM revealed that there is a huge protection gap even for individuals who have purchased life insurance. This means that the insurance cover is still not adequate and there is still a gap of about RM150,000.
For families without any form of insurance protection, the protection gap is about RM723,000 per family .
What it means is that, when there is a death to the wage earner of the family, in order for the family to sustain its current lifestyle and continue with their daily consumption, they would need a sum of around RM723,000 to last them for at least five years.
As the country transforms into a high-income and developed nation, the demand for better healthcare will grow stronger. This, coupled with improvement in longevity and advancement in medical technology, will further drive up the healthcare cost of the country.
For medical and education insurance, currently a tax relief of RM3,000 is given to the taxpayers. With rising medical costs, the tax relief of RM3,000 is insufficient to cater to the needs of a typical family.
As such, LIAM proposed a public-private partnership in managing the healthcare cost of the nation by increasing the tax relief from the current RM3,000 to a more meaningful RM6,000 for medical and education insurance premiums.
“The life insurance industry plays a very important role in various aspects such as financial protection, financial accumulation and healthcare funding as our country progresses towards a developed nation.
“With proper advanced planning and the right tax structure, the private sector and the Rakyat can be incentivised to play a bigger role and form a public-private sector partnership with the government in sharing the cost of various social economic benefits associated with a developed nation”, added Toi.