Imposing Provincial Sales Tax on Individual Life and Health Insurance
Key Messages for Saskatchewan MLAs
Information complied by Dean Owen CLU, CH.F.C
I. The value of financial advice to Saskatchewan households
• There are over 2,000 small business financial advisors in Saskatchewan that help over 280,000 households and businesses in their communities. The average client has $49,000 in financial assets, over 80% of all households have less than $100,000 of financial assets, and the average life insurance coverage is $187,000. These are the people who need financial advice the most and small business financial advisors are uniquely positioned to provide advice to their client base, “Main Street” Saskatchewan consumers.
• People who receive financial advice are more financially secure, are better protected and better prepared for retirement and unexpected life events than people who do not receive advice. Studies have shown that advised households have three to four times the financial assets compared to that of non-advised households across all income levels and years working with a financial advisor.
• Economic Footprint of Saskatchewan’s Small Business Financial Advice Industry:
• $596 million in direct GDP
• 4,600 direct jobs
• $140 million in government tax revenues
II. Imposing PST on life and health insurance is not good public policy
• Currently, no other province applies provincial sales tax to individual life and health insurance. Imposing the PST will put Saskatchewan residents at a disadvantage as the increase in cost would result in less coverage being purchased. Saskatchewan residents will be shocked to see that their existing insurance contracts will now be taxed by the amount of the PST. In addition to the 3% premium tax on insurance, the total tax burden will become a major decision factor regarding the amount of coverage purchased.
• Not enough people in Saskatchewan currently have life and health insurance. Every day in this province, families are left devastated by the death or disability of the loss of a breadwinner. Consumers purchase individual life and health insurance policies to protect themselves and their families from the financial risks associated with death or illness. It is unfair to tax these products as it punishes those who are trying to take responsibility for their future and for protecting their family.
• There are two ways Saskatchewan residents can protect their families from financial disaster that occurs due to becoming sick, disabled, or losing their life. They can try to save hundreds of thousands or millions of dollars, or they can buy insurance. Insurance is often the more realistic and cheaper option for many, and more efficient than everyone trying to over save to cover their own risks. Ultimately, life and health insurance is another form of savings. Applying the PST to individual life and health insurance is a tax on savings. It is similar to levying a 6% of tax on an investment or a contribution to an RRSP or pension fund. Applying the PST on insurance skews the playing field as investment contributions are not taxed. This can drive policy holders from purchasing less coverage in the future, putting residents of Saskatchewan at a disadvantage of having less than optimal amounts of insurance coverage.
• A significant amount of life insurance is purchased by business owners and entrepreneurs in the province. While the PST will be applied on the basis of the residency of the insured, the PST on insurance places Saskatchewan business owners at a competitive disadvantage and could have an impact on investment decision in the province in the future.
• Currently, Saskatchewan residents receive $2 billion annually in life insurance, annuity and health benefit payments, $800 million of which is derived from individual solutions provided by life insurance advisors in the province. The PST on individual life and health insurance could significantly diminish the amount of insurance coverage obtained, thus leaving the province on the hook for assisting Saskatchewan residents with their critical illness and health needs, and the financial needs associated with losing a key income-earner as a result of death.
• Greater access to life and health insurance coverage supports the government’s goals of improved financial security and health care. The financial security of middle-class households is vitally important since people will become less reliant on the government for their future financial needs such as retirement income, health needs, long-term care and disability. This ultimately helps the government to deal with the mounting financial pressures of an aging population and rising health care costs.
III. The Ask
• Applying the PST on individual life and health insurance is contrary to the government’s goal of dealing with mounting fiscal pressures due to an aging population as people will purchase less insurance to cover their risks.
• The government should not proceed with imposing the PST on individual life and health insurance. The government should immediately exempt individual life and health insurance from the PST and look at other alternatives for raising revenues necessary to deal with its fiscal challenges.