Life Insurance

A. Devadason
CA(M), FCCA, MDRT
Deva is a partner in the firm of Dason & Dason, Chartered Accountants who specialises in tax advisory and consultancy. He can be reached at deva@dason.com.my

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It has been announced that Life/Takaful policy holders may apply to have their premiums DEFERRED for 3 months if they are AFFECTED by the Covid-19 pandemic.

Unlike the Bank loan moratorium, the words here are different. Let’s analyse each term:-

  1. May Apply – This simply means, it’s the policy holder who needs to apply if they are seeking for a premium deferment. It’s not automatically given.

The policy holder can also choose to maintain status quo and not apply at all.

  1. Deferred – Care should be taken not to be confused with premium waiver. It is still due, but merely delayed. However, how it will be recoverable, is yet to be announced for now.

Questions on everyone’s mind would be:-

  1. For Investment Linked Plans (ILP), whether the Cost of Insurance needs to be settled over a grace period? Or will it be offset against the claim/surrender value/maturity value when it occurs?
  2. For Traditional Plans, whether premium tenure is extended by 3 months or deducted when claim is made in full/policy matures?

Due to it being a new announcement, we await further clarifications from the respective insurers.

  1. Affected – The definition announced for now, is either medically and/or economically affected. Refer to your insurer to obtain information on the supporting documents needed to make this claim.

Unlike banks, it’s tricky for insurance companies to follow suit in giving blanket premium deferment. The coverage liability is still there, despite not receiving premiums. During this time, if a covered event occurs, the insurer will still honour the contract.

In the case of banks, the interest is still running and added to the overall loan amount but this is not so with the insurer.

The bank is compensated in the end with higher payments for the delay that it has suffered. Furthermore, they are given tax incentives for assisting the country in this time of need.

An added feature is the Agency Force. Unlike Bank staff, they don’t receive a fixed pay. Their remuneration is tied with premium collection. No collection, no Commissions. Period. If this happens, the policy holder segment is relieved but all the agents in the country will now be financially distressed and this will now create another set of problem. The end objective of any initiative should be Win-Win.

The insurance company will also be distressed because premiums did not come in but medical bills, death claims, disability claims, and etc. must still be honoured.

Everyone is affected, some more than others. Let’s lend a helping hand to those who need it more than us. If you’re less affected, contribute to our Frontliners through the various funds established over the last week or so.

Until then, let’s be rational and take time to understand the various measures being implemented.

Strange as it may seem but we are living in strange times.

Our country needs our co-operation.

Be Strong. Be Resolute.

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