If you are a busy person and you often use your extra funds to invest in stock ETFs, you must have often heard the insurance agents around you say to you: "Why not buy investment insurance from me instead? At least you can avoid being taxed."
But is it really true, as the insurance agent said, that if I buy investment-type insurance instead, I won’t be taxed at all?
The tax treatment of investment-type insurance is indeed different from that of general stocks or ETFs, but it is not completely tax-free. It depends on the circumstances:
1. Investment appreciation within the policy:
In the account of an investment-type insurance policy, assets will not be taxed during the period of appreciation, which is related to the operation of the fund within the insurance account.
If the dividends are kept in the policy and not withdrawn, they will not be taxed.
2. Termination or Partial Withdrawal:
If you terminate the contract or make a partial withdrawal, and the withdrawal amount exceeds the premiums paid, the excess amount will be considered "gains" and must be included in the personal comprehensive income tax return.
Generally speaking, the excess amount will be taxed at a rate ranging from 6% to 40%, depending on the individual's comprehensive income tax rate bracket.
3. Death Claim:
The death benefits of investment-type insurance policies are generally not taxable, but if the total estate exceeds the tax-free amount, it will still be included in the estate tax.
4. Differences in taxation of ETF dividends:
If you directly hold Taiwan stock ETFs, the dividends you receive will be considered dividend income and must be included in your personal comprehensive income tax. The 28% or 30% tax rates will apply.
If you invest in ETFs indirectly through an investment policy, the dividends are not paid directly to the policyholders, but are rolled over in the policy and are therefore not taxed immediately.
Therefore, investment-type insurance is not completely tax-free, but the tax burden is deferred until the contract is terminated or the insurance is withdrawn.
If the purpose is long-term asset appreciation, there is indeed a tax deferral effect, but if withdrawals are made or contracts are terminated frequently, there will still be tax costs.
As for how to avoid being taxed, there are issues related to investment grade and how to withdraw profits so that the investment-type insurance can be truly tax-free. I will share this with you slowly later.
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