Tax treatment of indemnity payments for damages and losses
These parties, who express their responsibilities by signing a document called policy, are: the insurer, who assumes the risk; the contracting party, who buys the insurance; the insured and/or beneficiary, who receives the indemnity when the loss materializes.
The payment of claims is an obligation of the insurers, but let us not forget that the agreement is valid, as long as everyone fulfills their part. Therefore, the insured must take care of five points to fully guarantee the desired protection.
The insurer needs to know all the details in order to determine whether or not to accept the policy, such as the area where the home is located in home insurance policies, or the possible health problems that have occurred, in the case of personal insurance.
It is a fundamental obligation, since in case of not complying with the payments, or not giving timely notice of the desire to renew the insurance, the risk may not be covered, in case of an eventual accident with expenses involved.
Life insurance is taxed
In this way, you have the guarantee of being able to cancel a mortgage loan, the amortization of other loans contracted or ensure the payment of your children’s studies, among others, in case you are not alive.
However, although the contracting of a life insurance is not obligatory by law, most financial entities require its contracting to grant mortgage loans or to do it with more advantageous conditions.
If you take out a life insurance policy you must pay taxes. The tax treatment of benefits depends on who is the beneficiary of a life insurance policy. Therefore, the taxes to which a life insurance benefit is subject depend on whether the beneficiary is the policyholder or a different person.
Specifically, when the policyholder and the beneficiary are the same person, the payment of the benefit is subject to personal income tax. In the opposite case, the taxation is done through the Inheritance and Gift Tax, as inheritance.
But, how much is paid to the Treasury when receiving a life insurance policy? This amount is calculated, like all taxes, in percentages, and depending on the bracket you are in, this amount will be lower or higher.
Tax treatment of insurance indemnities 2020
The contributions derived from a life insurance can be taxed with different taxes, since in reality this type of insurance covers a wide range of variants. Individual or collective, associated with a mortgage, the different persons involved, the time at which the tax is calculated, the autonomous community in which the insurance has been taken out, are all factors to be taken into account when calculating the taxes. Like all tax issues it is quite dry, but with patience and good humor you will surely understand it!
We will analyze this subject in depth, as there are currently many types of life insurance, such as life and savings insurance designed to complement retirement, in which the figures of policyholder and beneficiary coincide.
Tax treatment of insurance indemnities 2018
They are always taxed -whether survival or death- as earned income and only the collection in the form of capital at retirement is reduced if all or part of what is received has been generated with contributions made before January 2007 -this implies a reduction of 40% of the capital received-. If what is received is in the form of income, everything will be taxed at 100% of its amount.
Given that they are taxed at a higher rate because they are earned income, these instruments acquire an advantage if the tax deduction is obtained, while active, at higher rates than those that would have to be paid when retiring.
Other savings instruments are the PIAS (Individual Systematic Savings Plans) and the SIALP (Individual Long-Term Savings Insurance). In these two instruments it is possible not to be taxed at maturity, not even for income from movable capital, if certain conditions are met:
As we observe with these analyzed characteristics, when planning our personal protection and the savings or investment we can make, it is essential that we do not forget how taxation influences.