Savings life insurance is valued not only for combining saving with protection. It has several advantages that ordinary savings lack: a tax deduction, a special legal status of payouts and the option to save in a foreign currency. Let us go through them one by one. A caveat up front: what follows is reference information based on the current wording of the Tax Code and general contract practice; tax rules change, so check the current wording and the terms of your specific contract.
Income tax deduction
The Tax Code of the Republic of Kazakhstan allows the base for individual income tax to be reduced by the amount of premiums paid under savings insurance contracts (insurers refer to subparagraph 53 of paragraph 1 of Article 341 of the Tax Code). Put simply, no income tax is withheld from the part of the salary a person directs to their own savings policy.
The deduction is usually applied by the employer’s accounting department when withholding tax from salary; the employee submits an application and a copy of the contract. Check the conditions for applying the deduction with an accountant or tax adviser.
Worked example
Example (an illustration; the rates, monthly calculation index (MCI) and deductions are taken from an example of previous years and may differ from current ones): salary 200,000 ₸, mandatory pension contribution (10%) 20,000 ₸, health insurance contribution (2%) 4,000 ₸, a deduction of 14 MCI 48,300 ₸, savings policy premium 40,000 ₸ a month.
| Item | Without a policy | With a policy |
|---|---|---|
| Income tax base | 200,000 − 20,000 − 4,000 − 48,300 = 127,700 ₸ | 200,000 − 40,000 − 20,000 − 4,000 − 48,300 = 87,700 ₸ |
| Income tax (10%) | 12,770 ₸ | 8,770 ₸ |
| Take-home pay | 163,230 ₸ | 167,230 ₸ |
In this example the saving comes to 4,000 ₸ a month, 48,000 ₸ a year and about 720,000 ₸ over 15 years — provided the rules and income stay the same. In effect, the state partly “tops up” the money a person saves for their own future.
Payouts are not taxed
Under current rules, insurance payouts under savings insurance contracts are generally not subject to income tax, and the client does not need to declare them. This applies both to survival payouts and to payouts to beneficiaries. The conditions of the exemption should be checked against the current wording of the Code.
Legal advantages
Money under a life insurance contract has a special legal status. As a rule, under an insurance contract:
- the payout is addressed to the beneficiary, so third parties find it hard to claim it in property disputes;
- to the extent provided by law, the payout is not part of the joint property divided on divorce;
- the beneficiary’s right to the payout is much harder to challenge than the division of an ordinary estate;
- the family receives the money within a few working days after submitting documents, not six months later as with an inheritance.
In addition, information about the contract is covered by insurance confidentiality: the insurer may not disclose it to outsiders except where the law expressly requires. The exact scope of protection depends on the law and the contract terms, so no absolute guarantees can be given, but overall the beneficiary’s position is very strong.
Protection against devaluation
Foreign-currency programmes — with annual premiums or a single premium — are linked to the US dollar. Premiums are paid in tenge at the exchange rate on the payment date, while the sum insured and payouts are calculated in the currency. This protects savings from a weakening tenge, and with the income credited they can also grow. The return depends on the programme and the insurer; indicative figures are in the consultant’s calculation.
Policy loan
In some programmes, once the contract has been in force for a certain time, you can borrow from the insurer up to a set share of the surrender value without terminating the contract. This helps when money is needed urgently but you do not want to lose your savings and cover. Loan terms and amounts depend on the contract.
The bottom line
The tax deduction, tax-free payouts, special legal status, protection against devaluation and the option of a loan make savings insurance much more than just a way to put money aside. A Dynasty consultant will help you work out your tax saving and choose a programme, and you can estimate your premium in the calculator on our website.