Paying for a critical illness protection plan is a transaction that stays private between you and your insurance provider. Taxes, however, are a different story: you may need to consider other key players like your employer and local tax laws. So, are critical illness policies taxable? Find out more below.
Critical illness policies are protection plans crafted by insurance companies to cover debilitating diseases that can significantly change one’s life, such as cervical cancer, kidney failure, and bacterial meningitis.
No one-size-fits-all solution answers the issue of taxing insurance policies, as well as how much the government will tax. Several factors can affect the taxable amount of your critical illness plan. Thus, you must review the policies of your insurance company first before securing the deal. You should fully understand the fine print before signing.
Insurance companies will tell you that an individually owned, stand-alone critical illness protection plan is not taxable.
It is the main difference between critical illness plans and disability insurance policies. Depending on the case, the disability may, unfortunately, impair your ability to perform optimally at work. As such, depending on your employer’s policies, disability insurance can translate into income, which is eligible for taxation in the Philippines by the Bureau of Internal Revenue (BIR).
On the other hand, critical illness policies are more like life insurance plans. Once you are diagnosed with any of the covered critical illnesses, your policy protects you in the long run, offering a safety net for when you need to be admitted to the hospital or undergo treatment. Hence, the money you get from your critical illness insurance is not taxable.
If you have a stand-alone critical illness plan, you would not have to pay taxes. That said, specific plans may be considered taxable, depending on the owner of the critical illness insurance. Here are some of the scenarios when authorities may consider critical illness insurance plans taxable:
A purchased critical illness plan can be considered a capital or a revenue expense of a company. If your company lists the illness benefit as capital, then it will be subjected to tax, as mandated by the Philippines Tax Code.
In some cases, your employer covers your critical illness insurance plan. When this happens, BIR may consider the insurance as corporate-owned. Depending on your company rules, it might also deem the benefits part of your income. When this happens, it becomes subject to Withholding Tax.
Insurance and taxes are two things that can best be understood when explained by an expert in the field. Even with various resources online, nothing beats the guidance of a licensed professional. Call your insurance agent now to know more about critical illness plans.