For decades, many South Africans have found themselves relying on the government for financial support in the event of them becoming disabled, retired or even being unable to continue working due to succumbing to serious illness. This is mainly attributed to poor planning or lack of knowledge – not understanding the importance of income protection.
When it comes to income protection (monthly pay outs, not lump sum pay outs), there is a tax benefit to be reaped. To be more specific, SARS will allow you to claim back all your premiums that you have contributed towards protecting your salary in the event of a temporary or permanent disability.
Unfortunately, most people do not know this and take expensive benefits on their risk cover yet never claim their premiums back for income protection when doing their tax returns. I certainly hope you are not one of them. Please check your policy and talk to your financial advisor if you have this benefit. If you do not currently have income protection, it is advisable to obtain this cover as at the end of the day it is self-funding.
For example, let us look at Mr Jones who started paying R100 per month towards protecting his salary of R10 000. At the end of the tax year, Mr Jones who has now contributed R1 200, can call his financial advisor, contact his insurance company or download his tax certificate and submit it to SARS. They (SARS) will then allow him to claim his full income protection premiums back on his SARS tax return.
Bear in mind that there is going to be a change that is effective of 1 March 2015 with regard to this tax deduction. You will no longer be able to claim your income protection premiums on your SARS tax return. However, you will receive the full insured amount without being taxed on the benefit paid to you. Currently, your premiums are deductible, but your insured benefit is taxed.
Don’t risk being over or under-insured. Always make sure you have a review with your advisor at least once a year or when there is a significant change in your life to make sure that your financial well-being is secured.