Sovereign mitigates worst of the tax impact

Media release
Wednesday 19 May 2010
 
 
Sovereign mitigates worst of the tax impact
 
 
Industry leader Sovereign today confirmed its intent to limit the impact on policy holders of impending tax increases on life insurance business, when the new legislation takes effect on 1 July. Sovereign will absorb some of the impact and will also reduce adviser commissions on affected policies.
 
The tax changes are expected to reduce profits across the insurance industry as a whole by as much as $75 million per year.

“As industry leader we are better placed than most to absorb the cost of the life tax changes and have carefully considered how to do this while maintaining our competitiveness, stability and superior A+[1] <#_ftn1> claims rating,” says Sovereign CEO Charles Anderson.
 
“The insurance industry has had plenty of warning of this legislation  The tax impact on premiums could’ve been upwards of 30%, but we’ve mitigated this for our customers by passing on just half of this potential increase.”

“Consumers, will face slightly higher premiums in future, though most existing customers will be protected from the immediate impact by the transitional provisions. For a typical customer with $300,000 in life cover, the changes will equate to approximately $3 a month.”

For most existing customers there will be no immediate impact as a result of the application of the new tax rules.  Under the new legislation, transitional provisions allow for most existing term life policies to effectively continue to be taxed under the old rules for up to five years.
 
The legislation, which was introduced in draft form nearly two years ago, will significantly increase the tax paid by life insurers. Current tax rules were set at a time when most life insurance policies included both risk and savings components. While the industry shifted to term life policies (with no savings component) in the late 1990’s, the legislation remained the same, arguably leaving the new type of life policies under taxed.

“The changes were inevitable,” says Anderson. “The challenge for all life insurance providers is to ensure that no one group is unfairly disadvantaged. It would be unreasonable for one party alone to bear the cost. For this reason, Sovereign will shoulder some of the impact and our advisers will receive reduced commissions.”

There will be no premium change to disability income protection, living assurance and total permanent disablement policies.

ENDS
 

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