A Personal Finance Blog for Malaysian: Protect your business - Keyman Insurance

Friday, October 1, 2010

Protect your business - Keyman Insurance

Who is Keyman?
He or she directly or even indirectly contributes to the success of the company. Usually the owner, managing director. It can be a valuable staff that perform very well and the skill not easily replaceable.


From tax point of view:-

  • Premium paid is not deductible expenses, if
    • There is a cash value element, i.e. Investment-Linked or Whole-Life or Endowment
    • The Company is a CONTROLLED COMPANY as defined under Section 139 of the Income Tax Act 1967, most bosses of SME falls into this category. 
    • Proceeds goes to the keyman or his family members
  • Premium paid is deductible expenses
    • There are no cash value i.e. term life or personal accident
    • The Life Insured is not the boss or director of a Controlled Company or The company is not a controlled company.
    • Proceeds goes to the Company.
IF the premium is a deductible expense, then the Claim (in term of RM100,000 or RM5,000,000) will be a taxable income.

You figure out if it is worthwhile to claim the premium as tax deductible expense?

Not all life insurance agent understand all this. Well, some bad one may just ignore in order to sell. There are always good guys and bad guys in any company, any industry, right?

7 comments:

  1. hi, what if the keyman insurance relates to a director who has > 5% shares in the company however the proceeds goes back to the company & only the excess goes to the director's family if any? basically covering a business loan that has been taken up by the director / keyman. pls advise.

    ReplyDelete
    Replies
    1. Hi Cajun33,
      The premium paid for key man insurance policy on the life of a director or an employee who owns shares in the company is not an allowable deduction.

      Delete
  2. Cajun33, what exactly is your question?

    Are you referring to the tax deductibility for insurance premium?

    If yes, then the answer is depends how IRB judge but best argument for the Company will be by apportionment.

    Anyhow, it is IRB officers duty to tax you so you may have to defend with reasons and reasonable argument.

    ReplyDelete
  3. hi Kong Hui,

    Sorry for the unclear question. Basically my question is how to get a tax relief for keyman insurance? if so how?

    thanks.

    ReplyDelete
  4. For personal tax, you entitle for up to RM6,000 tax relief in respect of contribution to KWSP and Life insurance premium paid.

    Assuming you are the keyman:
    For keyman insurance you have paid for by the company, usually it will be under your name and thus, just claim it under your personal tax. Anyhow, usually can't claim under Company.

    To claim, just fill in the blank in your Form B or Form BE.

    Just keep a copy of the Statement issued by the insurance company in your tax file for future reference.

    ReplyDelete
  5. If premium is not deductible meaning that the claim is not taxable ?

    ReplyDelete
  6. Yes.

    So, no point to make the premium tax deductible if you own the business. What you want is protection, not the small tax saving (selling point of many insurance agent)

    ReplyDelete