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How Does Tax Work on a Life Insurance Policy in South Africa

Guest post by - OneSpark

Navigating tax laws, especially in relation to life insurance, can be complex. But don’t worry, we’re here to help, and we’re going to use some real-life examples to make it even simpler.

In the current landscape of 2023, life insurance premiums in South Africa are not eligible for tax deductions. While tax laws are in constant flux, the present situation translates to the following:

Example 1: The Deduction Dilemma

Consider Mark, a 35-year-old software developer in Johannesburg. Mark pays a monthly premium of R500 for his life insurance policy. Over the year, he spends R6,000. While Mark can claim various deductions when filing his taxes, this R6,000 won't be among them.

However, the inability to deduct premiums comes with a noteworthy advantage. The eventual payout made to your beneficiaries is generally exempt from tax, meaning its paid-out tax free.

Example 2: The Tax-Free Payout

Sarah, a schoolteacher from Durban, had a life insurance policy with cover of R5 Million, from which her two children are beneficiaries. Should Sarah pass away, her children will receive a combined payout of R5 Million. This entire sum will be tax-free, allowing them to fully utilize the money for their education and well-being without worrying about tax deductions.

However, it's worth noting that tax advantages primarily apply to claim payouts. Cashback features associated with some insurance policies usually don't enjoy the same tax benefits.

Example 3: The Cashback Catch

Ravi, an entrepreneur in Cape Town, had an insurance policy with a cashback feature. This meant that after a period of no claims and potentially other factors (like loyalty engagement), he'd receive a portion of his premiums back. While the return of his R10,000 was indeed a welcome boost, it could be considered taxable income by SARS, and so would be reduced accordingly.

Because SARS regularly update their tax rules, always be sure to chat to your financial advisor or consult your policy guide to understand how the different benefits on your policy may be taxed.

While this may all seem overwhelming, don’t worry, OneSpark’s got your life insurance back.

OneSpark, the world’s most advanced AI-powered life insurance provider, takes the hassle and pain out of life insurance. Their smart technology ensures you are always optimally protected, adjusting as your financial needs and the world around your changes, including the tax implications. With OneSpark, you can focus on protecting your loved ones with smart, personalized, affordable protection, and let them take care of the complexities.

To delve into how AI is reshaping life insurance and to receive an instant quote, visit today.


OneSpark is an authorised FSP 50594. Products are underwritten by Guardrisk Life Limited, an authorised financial services provider (FSP No 76) and a licensed life insurer. The content herein should not be regarded as financial advice. Premiums are risk profile dependant and not guaranteed. Comparisons were done against most major online insurers as on 10/01/2023. For more information, please visit Ts&Cs apply.


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