BIR to issue rule on firms selling investment-linked insurance policies

The Bureau of Internal Revenue (BIR) is set to issue a regulation stating all the tax obligations of companies selling investment-linked insurance policies.  

The BIR said insurance companies should clearly state all the financial products they are selling to ensure that they are paying the proper taxes.  

Insurance companies have begun selling products that require policyholders not only to pay premium for an insurance cover, but also to contribute to a pool of funds that are invested in various instruments.  

This is because the insurance industry is becoming more diversified and sophisticated and as clients seek more options for financial products.  

In the draft regulation, insurance companies selling VUL or variable unit-linked insurance policies are subject to the 12-percent value-added tax (VAT) for the revenues derived from collecting management fees.

 These fees are charged by an insurance company for managing the pool of funds created from contributions of policyholders. VUL are those that require policyholders not only to pay for insurance cover but also to contribute to an investment fund, is covered by other taxes.   

Insurance companies selling VUL should also pay DST on the certificates issued to policyholders evidencing the latter’s contribution to the VUL fund.  

Policyholders, for their part, are required to pay income tax for the gains they realized from investing in the VUL fund.  

VUL products have gained popularity as many consumers preferred having their insurance policies also serving as investment instruments. Some insurance companies said it was easier selling VUL than traditional insurance policies because potential policyholders liked to hear more about how to invest for their future rather than preparing for their death.  

According to BIR rules, the business of selling “traditional” life insurance policies, or those that require policyholders only to pay premium for an insurance cover, is imposed the five-percent tax on premium collection, the documentary stamp tax (DST) equivalent to 50 centavos for every P200 worth of premium, and the 35-percent corporate income tax.  

The Philippine Life Insurance Industry Association (PLIA) said many insurance companies posted over 100-percent growth in revenue collection in 2007 because of their VUL business.