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Are You Really Eligible for the Life Insurance Tax Relief?

While filing your taxes, you may have come across the life insurance tax relief. 

It sounds straightforward – you’ve paid for your own life insurance so you can claim that relief to reduce your taxes.  

However, do you know that it’s difficult to qualify for it? A large portion of Singaporeans don’t qualify.

Today, we take a deeper look at the life insurance tax relief, and at the end, you’ll know whether you’re eligible or not.

So, read on! 

What Is Life Insurance Relief (& How to Qualify for It)?

Tax reliefs help you reduce your chargeable income, thereby reducing your income tax. 

However, there’s a maximum cap of $80,000 in tax reliefs that one can claim. In my previous article, I discussed how the group that’s most likely to hit that cap is working mothers earning a high income. 

The life insurance relief is just one of the many reliefs out there that are available to Singapore tax residents. In order to claim the life insurance relief for the Year of Assessment (YA) 2021, you must satisfy these conditions: 

  • You paid premiums for your own life insurance policy in 2020
  • For policies purchased on or after 10 August 1973, the insurance company must have an office or branch in Singapore
  • And the most difficult condition: your total compulsory employee CPF contribution, self-employed MediSave/Voluntary CPF contribution, and voluntary cash contribution to your MediSave account in 2020 was less than $5,000

Premiums paid for accident or health policies such as ElderShield, CareShield Life, and Integrated Shield Plans are not eligible.

Note: A married man can still claim the premiums paid for his wife’s life insurance policy.

Can Foreigners Claim Life Insurance Relief?

As long as the individual is a tax resident in Singapore and meets the qualifying conditions, he can claim tax reliefs, including the life insurance relief. 

To double check, you can use the IRAS relief checker to see which reliefs you may be eligible for.

It may be easier for foreigners (excluding Singapore PRs) to qualify for the life insurance relief because they don’t need to contribute to CPF. 

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A Large Portion of Singaporeans Might Not Qualify for This Relief

If your contribution to CPF or MediSave is $5,000 or more, you don’t qualify for the life insurance relief.

This makes it difficult to qualify because most of us would’ve been contributing a healthy amount to CPF on a regular basis. 

Let’s assume that we don’t make any voluntary contributions and look at some numbers. 

AgeEmployee CPF Contribution RateGross Annual Income (to reach $5,000 in Employee CPF Contribution)
55 and below20%$25,000
56 to 6013%$38,462
61 to 657.50%$66,667
>655%$100,000

* The numbers above apply to non-pensionable employees who are Singapore citizens and PRs (third year onwards) earning monthly wages of more than $750/month.

Looking at the table above, those who are aged 55 and below will need to earn less than $25,000 in annual gross income to qualify. The likely groups to qualify for this relief are those aged above 55, those who didn’t work for a full year, and those earning less than $25,000. It’s also important to note that if your income is less than $20,000, you don’t need to pay any taxes, so tax reliefs become irrelevant.

For self-employed people, the calculation for their compulsory MediSave contributions is more complex. But in general, across all ages, those who are earning $62,500 and above in Net Trade Income won’t qualify as their MediSave contributions would’ve been $5,000 or more. 

How to Calculate the Amount of Life Insurance Relief You Can Receive

If your total contribution to CPF or MediSave is less than $5,000, you may claim the lower amount of: 

  1. The difference between $5,000 and your CPF contribution; or 
  2. Seven percent of the insured value or premiums paid, whichever is lower

Here’s an illustration. 

Assumptions:

  • The insured value of the life insurance policy is $60,000 
  • There are annual premiums of $4,000
  • The total employee CPF contributions were $1,500 with no voluntary contributions

The answer to (1) is $3,500 ($5,000-$1,500)

The answer to (2) is $4,000 ($4,200 vs $4,000)

Therefore, the individual can claim a life insurance relief of the lower amount of (1) and (2), which is $3,500.

Don’t Forget the Purpose of Having Life Insurance

While a majority might not enjoy any tax benefits of having (and paying) for life insurance, those who can qualify for the relief aren’t likely to claim the full $5,000. 

Having said that, these factors shouldn’t influence your decision-making regarding life insurance matters. 

When we look at the bigger picture, having life insurance such as term insurance and whole life insurance is simply to be able to provide financially for your dependents when life takes a turn for the worst. Tax benefits (if any) should come only as a bonus. 

Therefore, isn’t it more important to have sufficient life insurance so that your dependents are well-taken care of?

And since we’re on this topic, if you’ve never gone through a comprehensive financial planning (or if it has been some time), find out more about our FullCircle planning by clicking here.

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Abram Lim

With over 7 years of experience in the financial advisory industry, and previous stints in Citibank and UOB, Abram eagerly shares his knowledge by publishing research-backed articles. Learn more about Abram