【Voluntary Health Insurance Tax Deduction Guide】What is the maximum tax deduction for voluntary health insurance? Includes examples of claiming health insurance tax deductions

Every first quarter of the new year, social media is inundated with promotions for voluntary health insurance, loudly touting "tax deduction benefits", making people tempted to buy a voluntary health insurance plan to save on taxes and build protection.

But the average person may not be able to clearly tell the difference between voluntary health insurance and traditional hospital insurance, nor understand the "Standard Plan" and "Flexible Plan", and may not even know how to calculate the tax deduction. This time, 10Life has put together a handy guide to break down everything you need to know about tax deductions for voluntary health insurance in one go. 

Voluntary Health Insurance = Medical Insurance + Government Accreditation

The Voluntary Health Insurance Scheme, abbreviated as VHIS, is a type of private inpatient medical insurance that is recognized by the Medical and Health Bureau. The Bureau first established a set of "rules of the game" for VHIS: insurance products that meet the prescribed thresholds set by the Bureau will be certified as "accredited products." Product pricing is set by the insurance companies themselves, and consumers are free to choose whether to purchase; if they do purchase, they may be eligible for tax relief.  

In addition, once an insurer registers to participate in VHIS, it must, within ten years, provide existing medical insurance policyholders with a one-off simplified opportunity to choose whether to transfer to VHIS.  

VHIS vs Traditional Medical Insurance: What’s the Difference?

As mentioned above, accredited VHIS products must be approved by the Medical and Health Bureau, so there is an official body overseeing them and the coverage must meet the minimum requirements set by the Bureau. Compared with ordinary medical insurance, VHIS offers several innovative coverage items (see below), and policyholders can claim tax deductions for premiums paid on VHIS policies.  

Why Did the Government Introduce VHIS?

According to the government's VHIS website, the policy objectives of VHIS are threefold, including:  

(a) Raising the protection level of inpatient insurance products;  

(b) Providing the public with an additional option to use private medical services through inpatient insurance; and  

(c) Reducing pressure on public hospitals in the long term.  

As of 31 March 2022, the number of VHIS policies had exceeded 1 million, of which 53% of insured persons were under 40.  

What Does VHIS Cover?  

Because the main aim of VHIS is to raise the protection level of inpatient insurance products, the government standardizes the terms and coverage for all VHIS plans and sets minimum requirements. According to the government's VHIS website, VHIS products must guarantee renewability up to age 100 and must not have a "lifetime benefit limit." Coverage is also expanded to include:

• Pre-existing conditions unknown at the time of application
• Congenital conditions that appear or are diagnosed at age 8 or later
• Day surgery, such as endoscopy performed at a day treatment center
• Specified diagnostic imaging tests, such as CT, MRI, PET
• Inpatient psychiatric treatment carried out in local hospitals
• Specified non-surgical cancer treatments, such as radiotherapy, chemotherapy, and targeted therapy

For detailed coverage information, you can browse the official VHIS website and the relevant VHIS product brochures.  

What’s the Difference Between a "Standard Plan" and a "Flexible Plan"?

You may have noticed that VHIS is divided into "Standard Plans" and "Flexible Plans." What is the difference? A "Standard Plan" needs to meet the basic requirements set by the government mentioned above. After meeting the basic coverage requirements of a "Standard Plan," if the coverage is further enhanced—for example by increasing sub-limit amounts or adding extra medical benefits—then it is considered a "Flexible Plan."

What Are the Pros and Cons of VHIS?

The advantages and disadvantages of VHIS are issues consumers care about. In fact, we previously wrote a feature article analyzing the pros and cons of VHIS point by point, including unpacking the intricacies of renewal terms. If interested, readers can refer to "【Voluntary Health Insurance Scheme】Price Transparency and Tax Deductibility: A Point-by-Point Analysis of Pros and Cons."  

Tax season is approaching. One of the taxpayers' biggest concerns is how the Voluntary Health Insurance (VHIS) tax deduction works. Below we explain what you need to know about VHIS tax deductions.

VHIS tax deduction cap

One of the main features of VHIS is that premiums are tax-deductible. The maximum deductible premium per insured person is HK$8,000. This does not mean a direct HK$8,000 tax reduction each year; you must multiply the VHIS premium by your tax rate to get the actual tax deduction amount. The formula is:

"VHIS premium x tax rate = tax savings"

Tax rates depend on taxable income. Since the 2018/19 assessment year, the standard tax rate is 15%, while the marginal tax rates are 2%, 6%, 10%, 14% and 17%.

However, if an insured person's marginal rate is only 2%, even if they reach the HK$8,000 deductible premium cap, they would only save HK$160 in tax per year. On the other hand, at the highest Hong Kong rate of 17%, a premium at the HK$8,000 cap would save HK$1,360 per year.

It is worth noting that whether a taxpayer pays premiums for themselves or for "specified relatives", the premiums can be claimed as tax deductions under Salaries Tax and Personal Assessment. "Specified relatives" include the taxpayer's spouse and children, and the grandparents, grandparents-in-law, parents and siblings of the taxpayer or their spouse.  

Deductible amount is not the same as direct tax saved? See VHIS tax deduction example 

Still unsure about VHIS tax deductions? Refer to the hypothetical example below. Suppose Mr. A purchases VHIS for himself and the specified relatives listed below. See the differences between the VHIS premiums, the amounts eligible for tax deduction, and the tax savings:

The Voluntary Health Insurance Scheme (VHI) has been in place for five years and has gradually become a mainstream medical insurance product. To help consumers easily understand product coverage, 10Life actuaries used up to 12 injury and illness case scenarios to calculate medical insurance coverage rates and other special benefits — for example, considering whether a product has features that guard against medical inflation — and established a rating methodology. If you want to learn more, feel free to use the "Product Decoder" to compare coverage and price.  

Further reading: [Which VHI Is Best 2024] Comparison of "5-star" plans — which one is the pick for middle-class families? 

Insurance for children, women, and men needs to be different, and not everyone knows how to analyze insurance terms and product brochures. Instead of asking people online to do your homework, why not get help from 10Life insurance advisors — it's simple and fast. If you have any questions about products or claims, feel free to call or WhatsApp 37051599 to consult our 10Life insurance advisors.  

Can I claim tax deductions if I purchase Voluntary Health Insurance for family members at the same time?

Yes. Taxpayers can obtain tax deductions for eligible Voluntary Health Insurance (VHIS) plans purchased for themselves and their “specified relatives.” Note that the tax deduction for VHIS is calculated on a per-insured-person basis, with an annual cap of HK$8,000 per insured person. This means that if a taxpayer insures family members, they can claim more than HK$8,000 in deductions per year.

If I and a family member both take out two policies for the same family member, can we apply for tax deductions?

Yes. Each policyholder can claim a tax deduction for an approved plan, with a premium cap of HK$8,000.

Besides VHIS, are there other insurance products that are tax-deductible?

In addition to VHIS, Mandatory Provident Fund (MPF) contributions and Qualified Deferred Annuities (QDAPs, tax-deductible annuities, also known as tax-refund annuities) are also tax-deductible. These three are commonly referred to as the “three tax-deduction essentials.” The “three tax-deduction essentials” can provide each taxpayer with HK$68,000 or more in annual tax deductions. At the current top salaries tax rate (i.e., 17%), a taxpayer can save HK$11,560 or more in tax per year. To learn more, you can read «【Three Tax-Deduction Essentials】Qualified Deferred Annuity, Tax-deductible Voluntary MPF Contributions, VHIS Tax-deduction Quick Guide!»

Note: The above examples and information are for illustration and reference only and should not be regarded as tax advice. Readers should consult the Inland Revenue Department and VHIS plan webpages, or seek advice from a professional accountant or tax advisor.

Last updated: 4 December 2024 

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