Many companies in Kenya nowadays sweeten their employees' terms of service with the Group Life Cover, where life insurance is taken on the lives of the company's employees during their time of service. The insurer (insurance company) agrees to pay out the sum assured (usually different for each employee) in the event that they pass on. This is in exchange of an insurance premium (usually annual) paid by the company on the employees' behalf.

That's the benefit - that one has a life cover, while not paying premiums for this cover.

And as you may have guessed, the tax man (got to love that guy) would like to tax you on this amount; terming it a benefit or advantage to therefore taxable to the employee.

Thankfully, Standard Chartered Bank took the Commissioner to task over this matter (Commissioner of Domestic Taxes vs. Standard Chartered (Kenya) 2011) and won, allowing the bank to claim the annual premiums it paid for the life cover as expenses to its business. Further, the court was of the opinion that since the sum assured (the total sum paid if the death of an employee occurs) was paid to the bank first, for onward transmission to the deceased employee's dependants, the life cover was not a benefit to the employee. Phew! That's a winding legal explanation.

What does it mean to you?

The law in Kenya (Insurance and Tax law) allows for what can be termed as Corporate Owned Life Insurance (COLI) and Bank Owned Life Insurance (BOLI) where the sum assured, as per the policy statement is paid to the company and NOT the employee.

Were the employee to be paid the sum assured directly, the premiums paid by the employer on the employee's behalf would be taxable on the employee.

Example:

Assuming the employee's income per month is above 38,892/= , and the employer pays 300,000 per annum as insurance premium on their behalf; this would come to 25,000/= premium per month. The tax liability on the employee would then be 7,500/=.

But in Kenya, all Group Life Insurance Covers are either COLI or BOLI - meaning the next time you see your boss today, flash him a smile - he's ACTUALLY saved you some money.