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Insuring your life

May 01, 2017

Are your insurance premiums tax-deductible?

Can you get a tax break for life, health or disability insurance? Sometimes. Here’s what to ask a tax professional to find out the answers for you.

I would have loved to have made this article 1 word long, with a direct “yes” or “no” answer to the question posed in the headline.

Sorry, but there’s no 1-word answer. “Probably not” is the most useful 2-word answer.

To be clear, the only reliable answer you’ll get that addresses your own – or your company’s – specific insurance and tax situation will come from an independent tax professional, like an accountant.

Thanks to Canada’s Income Tax Act (ITA), deductibility of insurance premiums is a complicated maze of specific rules for specific scenarios. (If you don’t believe me, check out the index to the ITA – the index alone is enough to make your head spin.) So this article gives you an introduction to the topic, but it’s not the last word on the subject.

  • Generally, life, health and disability insurance premiums are not tax-deductible for individuals or businesses.

So you should assume the answer is no until you find out whether your specific situation is an exception. Think of the table below as a way to help you better frame the question when talking to your tax professional about your situation.
 

Are these insurance premiums tax-deductible?

INDIVIDUAL LIFE INSURANCE

Individuals:    Not usually. If you use your life insurance policy as security on a loan: Possibly, but tax advice is a must.

Businesses:   A corporation can deduct life insurance premiums if they are used as security for a loan, the same as an individual. Again, tax advice is a must.
 

GROUP TERM LIFE INSURANCE

Individuals:    No – premiums are generally paid by the employer and are taxable income for employees.

Businesses:   If your business pays the premiums for your employees: Yes, provided they’re a reasonable business expense.
 

LIFE INSURANCE USED FOR CHARITABLE GIVING

Individuals:    No, but you get a tax credit if the charity owns the policy. If you own the policy but name the charity as beneficiary, you don’t get a tax credit for the premiums you pay, but your estate gets a tax credit for the death benefit. Tax advice is a must for this strategy.

Businesses:   Yes, if the charity owns the policy. Again, tax advice is a must for this strategy.


LIFE OR HEALTH INSURANCE OWNED BY AN EMPLOYEE, WITH PREMIUMS PAID BY EMPLOYER

Individuals:    No. Premiums paid by the employer are a taxable employee benefit.

Businesses:   Yes, as long as the premium payments are a reasonable business expense.
 

KEY PERSON INSURANCE

Individuals:    N/A – key person insurance isn’t purchased by individuals on their own lives. In any event, it would be treated the same as individual insurance.

Businesses:   No. Premiums a business pays for life or health insurance are not deductible when the business will get the insurance benefit.


GROUP HEALTH INSURANCE PROVIDED BY EMPLOYER, FOR EMPLOYEES

Individuals:    No. Employer-paid critical illness insurance and income-style long-term care insurance (LTCI) premiums are taxable employee benefits. Employer-paid premiums for disability income insurance (DI), personal health insurance and reimbursement-style LTCI are not taxable employee benefits.

Businesses:   If premiums are a reasonable business expense: Yes. If premiums are paid for a shareholder: No.


HEALTH INSURANCE OWNED BY INDIVIDUALS OR SELF-EMPLOYED PEOPLE

Individuals:    Critical illness insurance; income-style LTCI, disability income insurance: No. Personal health Insurance including reimbursement-style LTCI: No, unless you’re self-employed, in which case yes, subject to limits. Personal health insurance premiums that can’t be been deducted may count towards a claim for the Medical Expense Tax Credit.

Businesses:   n/a


I think I’ll leave it at that. Before claiming any insurance premium as a tax deduction, you need to talk to your tax professional. If you don’t have one, ask your financial advisor for a referral.

This article is intended to provide general information only. Sun Life Assurance Company of Canada and the author do not provide taxation advice. Before acting on information in this article, individuals and corporations must seek advice from a qualified professional, including a thorough examination of their specific legal, accounting and tax situation.

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