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BY Invitation
SORACHON BOONSONG AND SUMET ORSIRIVIKORN
Format calls: DLINE, XHEAD, CREDIT, ENDInsurance policies for children: can parents enjoy the tax benefits?
There are many parents who may be wondering, given the recent increase in tax-deduction benefits from buying life insurance policies, if there is any way they can enjoy such appealing benefits from buying life insurance policies for their children.
In order to increase domestic savings and stimulate the slowing economy, the Finance Ministry recently approved a scheme allowing taxpayers to use up to 100,000 baht a year in life insurance premiums (up from 50,000 baht) as a personal deduction from taxable income. This has encouraged many more people to invest in life insurance policies to seek the tax benefit, and has provided the public with an appealing savings alternative in the process.
However, such tax incentive does not apply to insurance premiums paid by parents for their children's policies. This is because the Revenue Code only allows the insurance premium payer to enjoy the tax benefit if the payer himself is the insured. Since it is the children who are recognised as the insured, not the parents, the parents are not eligible for the tax benefit.
In this regard, it may be possible for the Revenue Department to provide a tax incentive that encourages parents to buy life insurance policies for their children, much like the incentive it gives to a similar case of role reversal. The Luuk Katun Yoo (''grateful child'') insurance policy is one on which children pay insurance premiums for their elderly parents' personal accident coverage. The Revenue Department does allow these grateful children to enjoy a 15,000-baht premium deduction benefit.
It would be a welcome stimulus if the Revenue Department were to make available a special tax exemption benefit for loving parents. In this sense the department could also prescribe certain requirements, such as the children's age or income, among other conditions, as it sees fit.
It would make sense that if grateful children are eligible to enjoy tax benefits, so too should loving parents.
The involvement of both the Office of the Insurance Commission (OIC) and life insurers would also be required, however, to underwrite insurance policies that accommodates this particular type of feature. This type of policy is clearly intended for parents to be the insured, and for the children's lives to be the subject of the insurance, since the parties buying and paying for the policy are the parents.
However, due to inconsistency between the common life insurance policy forms currently used by all life insurers and the law governing them, the children are recognised as the insured. This is inconsistent with the underlying intention of the parents who buy their children life insurance policies.
The problem of inconsistency lies in the fact that life insurers commonly omit the subject of the insurance from their policy forms. Without a means to indicate the subject of insurance, the insurers automatically recognise the children as the insured, and their lives as the subject of the insurance. This has raised many problems in the past for life insurers, when the parents who pay the premiums claim that the policy form is inconsistent with their intention in being the insured themselves. Subsequently, the available tax benefit goes to waste, since the children do not usually have any income and cannot take advantage of such benefit.
To remedy this problem, life insurance policy forms must include the now-missing subject of insurance, which is accommodated by the law anyway. The Civil and Commercial Code states that an insurance policy must contain, among other things, the subject of the insurance, along with the name of the insured and the beneficiary, which clearly separates the two subjects.
This will eradicate the existing inconsistency between the law and common practice.
The elimination of such inconsistency would allow parents to assign their children as the subjects of insurance, and themselves as the insured who enjoy the tax benefit. Accordingly, life insurance companies should revisit their policy forms, and present revised policy forms to the OIC for approval.
Providing parents who buy life insurance policies for their children with a tax benefit would encourage more parents to invest in this kind of coverage, which would, in essence, benefit the life insurance sector as a whole. With all that said, there is no reason why insurers, the OIC, and the Revenue Department cannot work together to achieve a win-win situation that would benefit everyone, especially the life insurance business itself, which is in the government's best interests.
Sorachon Boonsong is a partner and Sumet Orsirivikorn a lawyer for Baker & McKenzie in Bangkok.
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