When it comes to life insurance tax questions on New Zealand policies and benefits, there is not a simple rulebook or instruction manual to follow. Insurance policies and payouts are taxable, but who pays the taxes and what degree taxes are owed depend on a variety of factors.
Major changes in New Zealand tax law in the past two decades have actually affected life insurance companies directly. Consumers sometimes share in the burden, however, when tax related costs are passed on through premiums.
In 1990, laws were passed that reduced taxation on insurance companies. Over the next 20 years, many people had life insurance tax questions about whether insurance companies were reaping high profits because of the tax decrease.
In reality, competition on the New Zealand insurance market reduced premiums so much that insurance companies often fought to break even. Consumers, and not companies, were reaping the rewards of lower taxes.
In 2010, laws reversed the tax decreases. In order to level the balance sheets, insurance companies had to raise premiums for many clients. To complicate matters, the new laws were not applied to certain grandfathered policies.
Life Insurance Tax Changes
Life insurance tax changes and laws do not just change the price of premiums, however. Those who are beneficiaries to certain types of plans may have to pay taxes on money paid out under the plan.
Imagine being a beneficiary to a plan, receiving a windfall under unfortunate circumstances and then being hit with an unexpected tax bill. Often, there is no way to anticipate such a scenario, and people in these scenarios are often confused. They pay the taxes based on a bill or incomplete information, often paying more than they need to.
There are no easy answers to life insurance tax questions in New Zealand. Due to this fact, it is important for anyone in the market for life insurance policies to seek professional assistance. It is equally important for anyone receiving beneficiary payments from a life insurance plan to speak with an attorney or accountant.
The only way to know for sure if taxes affect your policies is to talk to professionals who understand the ins and outs of complex tax law.
Life Insurance: Facts For The Consumer
