Inkomste - Income

Loss of income – Monthly Permanent Disability Benefit / Temporary loss of Income

This benefit provides a monthly benefit amount up to a maximum of 100% [75% maximum allowed by law for permanent]  of your actual monthly income when you are ill or injured and are unable to work at the time of a claim.

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Taxation changes effective 1 March 2015

Income disability and impairment benefits: {Taxation changes effective 1 March 2015}

Benefit limits will be applied to net income.

Currently benefits are limited overall and also according to an individual’s gross income. With effect from 1 March 2015, overall benefit limits will remain unchanged. However, individual benefit limits will be applied to net income.

For example:

Let us assume an individual earns R22 000 gross taxable income per month. According to the SARS income tax table which will be used for the calculation, the individual will be in a marginal tax bracket of 11%. Therefore, his or her net income will be 89% of R22 000, which leaves him or her with R19 580 net income per month. He or she will be eligible to insure a maximum of up to 100% of his or her net income for the first two years and after two years up to a maximum of 75% of net income.

Deductibility of premiums: New legislation (Effective 1 March 2015)

All premiums paid by natural persons in respect of income protection policies will no longer be tax deductible.

  • Where an employer owns the income protection benefit policy and also pays the premiums, for the benefit of the employee, the employer receives a tax deduction under Section 11(w)(i) of the Income Tax Act. This deduction is possible as long as the premium is included in the employee’s gross income as a fringe benefit. The employee will no longer receive the tax deduction in respect of premiums paid by his or her employer for his or her benefit.
  • Premiums paid in respect of business overhead protection policies and business protector policies, owned by business entities, are tax deductible under Section 11(w)(ii) – if all the requirements are met.
  • Where a business overhead protection policy or business protector is owned by a natural person, the premium is no longer tax deductible.
  • Where an income protection benefit is owned by a natural person and is payable to that person following a successful claim, it is included as gross income. However, a tax exemption will now apply (under Section 10[1][gl] of the Income Tax Act) which will render the proceeds tax-free.

Section 10(1)(gl) exemption:

  • An amount due under the insurance policy is payable to a natural person;
  • This natural person is also the policyholder of that policy or an employee of the policyholder; and
  • The policy must relate to death, disablement, severe illness or unemployment of that person.
Source:  Momentum

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