When taking out a life or health insurance policy, you may have doubts about how insurance policies are taxed. It is important that you have this information so that you can make your tax return correctly. This is one of the most unknown aspects of these products, but also one of the most important. In addition, they have tax advantages and exemptions that help you save.
In the first place, you have to know the tax obligations, that is, how much tax you have to pay for taking them out and how you have to do it. Secondly, there are the tax exemptions, i.e., the payments that we can save by having one of these products.
How life insurance is taxed
Life insurance is a product aimed at the future that can be purchased to prevent any event that damages the family economy, including disability or death. According to the report “Estamos seguros 2020 (2021)”, by Unespa, which you can consult here, 20.7 million Spaniards are insured against these situations.
But there is another type of life insurance: those focused on enabling the contracting party to enjoy a standard of living similar to the current one if he/she is unable to work (for example, while recovering from an illness).
In order to know how to pay tax on them, it is necessary to distinguish between two possible situations: if the contracting party and the beneficiary are the same person, or if the beneficiary is a third party.
If the person who receives the amount of the insurance is a different person from the one who contracted it, the taxation corresponds to the inheritance and gift tax. When it comes to paying this tax, the first 9195.49 euros are exempt if the beneficiary is the spouse, an ascendant or a descendant. However, it must be taken into account that this tax is different in each autonomous community, as is the maximum amount that is exempt.
How insurance policies are taxed according to the method of collection
If the beneficiary is the same person who has contracted the insurance, the tax payment will depend on the form in which the money is received.
In this case, the difference between the money received and the premiums paid must be taxed as income from movable capital. This means that it is integrated in the taxable base of the savings that is taxed in the personal income tax (IRPF). In other words, it will be included in the income tax return as income received. Depending on the amount, the tax rate applied ranges from 19% to 23%.
– In the form of income. It is also considered as income from movable capital and will be added to the savings tax base.
In the case of temporary annuities, a percentage must be applied to each annuity according to the years they will last (between 12 and 25%). In the case of immediate annuities, a percentage must be applied depending on the age of the beneficiary when the insurance was taken out (between 40% for those under 40 years of age and 8% for those over 70 years of age).
Finally, deferred annuities can be taken out in the form of a life annuity or a deferred temporary annuity, so that the return on capital will be calculated according to the above percentages. To the resulting figure must be added the yield obtained up to the time of the creation of the annuity.
Life insurance deductions
The premiums paid for a conventional life insurance cannot be deducted in the income tax return, neither the salaried employees nor the self-employed. This group of workers can deduct a part of what they pay for their health insurance and for their ILT (temporary incapacity for work) insurance.
The case of mortgage life insurance
Similarly, anyone can deduct their life insurance if it is linked to the mortgage. In this case, it is allowed to deduct up to 15% of the amounts used for the purchase of the house and the payment of the home and life insurance, up to a maximum of 9040 euros per year. This advantage is only applicable to homes purchased before January 1, 2013.
This tax relief applies both to mortgage life insurance purchased with the bank, which can be up to three times more expensive than those made through a brokerage, as well as those contracted with an external company. This is something that many people do not know, but it is an important point: Any life insurance can be linked to the mortgage (whether it is from the bank or not). If you decide to save money and not take out the mortgage life insurance with the bank, the bank will ask you to sign a clause specifying that the beneficiary is the bank. This clause will be made by the insurance company.
Having this information can help you choose, in a free and informed way, the best life insurance and mortgage, without pressure from the bank, but it is important that you compare the different life insurance options in our comparator and consult with our advisors, which will guarantee you a better price in the long term.
Taxation of health insurance
According to Unespa, in 2021 in Spain 11 million people had private health insurance. Of that number, 10 million had health insurance and the rest received a sickness or hospitalization allowance. In other words, around 25% of the Spanish population has health insurance.
However, not all of those insured can deduct the premiums they pay. Only the self-employed can do so. The maximum amount that can be deducted is 500 euros for each family member (himself, his spouse and children under 25 years of age who do not exceed a minimum income), or 1500 if any of them has a disability. The total amount cannot exceed 4500 euros. If you want to know more about health insurance and how they are tax deductible, you can do so by reading this article.
In the income tax return, health insurance directly reduces the taxable base of the self-employed. That is to say, the contribution is deducted from the total income, so the Treasury considers that less money has been earned at the time of making the declaration.
Companies and their employees are the ones who benefit most fiscally from this product. Companies can deduct 100% of the expense they make on their employees’ health insurance in their corporate income tax, and that amount is subtracted from profits.
Employees are exempt from taxation and do not have to add the tax to their personal income tax earnings. For this reason, in order to pay less on the income tax return, this type of flexible compensation can be negotiated in lieu of a salary increase. To be able to deduct it, again the limit is 500 euros per person and 4500 in total.
Know how insurances are taxed and make your tax return correctly.
In short, it is important to know the tax obligations that we assume when we take out life insurance or health insurance to have everything in order with the Treasury. Nor should we forget that these are products that, in addition to saving our economy or health in case of need, can benefit us in our income tax return and thanks to them we are exempt from paying certain taxes.