Tell me about taxation on life insurance ?
The sums provided as benefits by pure protection policies are normally free of income tax. But there are important differences. For example, the lump-sum benefit provided by a term assurance policy is free of tax. Of course, as soon as it is invested to earn an income then the income is taxable at whatever rate of income tax the recipient is liable. On the other hand, the annual benefits paid under FIB policies are installments of capital rather than income, so they are not liable to income tax at all.
In the case of benefits payable under an individual permanent health insurance policy, the normal practice is that no tax is payable until the benefit has been paid for a full “fiscal year”. The fiscal year runs from 6 April to 5 April, so the effect of this rule is that benefit may be payable for up to 23 months before any income tax is due. If benefit starts In May 1977, then 11th months up to the following 5 April 1977 it constitutes a full fiscal year. No more than after a further 12 months has passed will tax be calculable.
This concession on potential health benefits applies only to the individual taking out it policy himself; and it is counterbalanced by the fact that when tax does become payable, so that it is subject not only to maximize rate and only tax but higher rates where these apply but also to the investment income surcharge. For the fiscal year 1977, the add-on was charged at 10% on the band that means: between £1,700 and £2,250 and at 15% on any extra over. The levels at which the add-on starts to lie on the ratio of 1:2 for those aged older than 65 years.
Life insurance can therefore be beneficial to you in many ways. There are so many options available with life insurance than it can be confusing at times. In this case, you may request the help of a professional life insurance consultant to ease you out. Simple explanations can effectively aid you.
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