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Are your insurance premiums tax-deductible?
February 17, 2026
By Sun Life staff
Can you get a tax break for life insurance or health insurance? What about tax breaks for insurance premiums on your business? Here’s what you need to know.
Understanding taxes can feel overwhelming, especially when it comes to figuring out which insurance premiums you can deduct. We're here to help make it clearer. In Canada, whether you can deduct your insurance premiums depends mainly on whether the insurance is for personal or business use.
While most insurance premiums for individual plans aren't tax-deductible, many business-related insurance costs can be claimed as deductible expenses. Knowing your specific type of coverage and its purpose is key to understanding how it's treated during tax time. Here’s what you need to know:
What "tax deductible" means for insurance premiums
When insurance premiums are tax-deductible, it means you can subtract the cost of those premiums from your taxable income, which may reduce the amount of income tax you owe.
Are life insurance premiums tax deductible?
Generally, life insurance premiums paid by individuals are not tax-deductible in Canada, though there are some specific exceptions and important considerations worth understanding:
Is personal life insurance tax-deductible?
No, premiums paid for personal life insurance policies are not tax-deductible. The Canada Revenue Agency (CRA) does not allow individuals to deduct the cost of life insurance premiums on their personal tax returns, as life insurance is considered a personal expense rather than a medical or business expense.
What are the special exceptions where life insurance premiums are tax-deductible?
Life insurance premiums are typically not tax-deductible for individuals, but there are limited exceptions. Premiums may be tax-deductible in these specific circumstances:
- Business Loan Collateral
- When the policy is required as collateral for a business loan.
- Investment Income Security
- When the policy is assigned to a lender as security for borrowing money to earn business or investment income.
Keep in mind, these situations have strict requirements and conditions. That’s why it’s best to consult with a tax professional to confirm your eligibility.
Are health and dental insurance premiums tax deductible?
Health and dental insurance premiums may be eligible for tax relief through the Medical Expense Tax Credit (METC), provided they meet specific criteria established by the CRA:
Private health services plan (PHSP) eligibility
Premiums for private health and dental insurance may qualify as eligible medical expenses if the plan meets the CRA's definition of a Private Health Services Plan (PHSP). In order to be eligible, you must meet the following requirements:
- Coverage must primarily be for you, your spouse or common-law partner, minor children, or minor or dependent children.
- Coverage must be for medical or dental care. Your insurance plan must provide benefits for medical expenses as defined by the Income Tax Act, excluding non-medical purposes.
Medical expense tax credit (METC) eligibility
The METC is a non-refundable tax credit that reduces the amount of federal and provincial tax you owe.
Eligibility threshold:
You can claim this credit once your total eligible medical expenses exceed:
- The lesser of 3% of your net income and
- A set dollar amount (adjusted annually by the CRA)
How the METC credit is calculated:
This credit is determined by applying a percentage to your qualifying medical expenses that exceed the threshold.
- Federal portion: Approximately 15%
- Provincial portion: Additional provincial rates apply
This calculation applies to all provinces except Quebec. In Quebec, the METC is calculated by applying a rate of 20% to the amount of eligible medical expenses that exceeds 3% of your net family income.
Is disability insurance tax deductible?
No, disability insurance premiums are not tax-deductible for personal policies. However, this has a significant benefit: if you pay your premiums with after-tax dollars, any disability benefits you receive in the future will be tax-free. Conversely, if your employer pays your disability insurance premiums (or you deduct them as a business expense), the benefits you receive would be taxable income.
Is critical illness insurance tax deductible?
No, critical illness insurance premiums are not tax-deductible for personal policies. Like life insurance, the premiums are considered personal expenses. However, any lump-sum benefit paid out from a critical illness policy is typically received tax-free, providing financial support without additional tax burden during a critical health event.
Are travel insurance premiums tax deductible?
Travel insurance premiums are generally not tax-deductible, but the medical coverage portion may qualify for the Medical Expense Tax Credit.
Are life insurance premiums for businesses tax deductible?
Life insurance premiums for businesses are generally not tax-deductible, with important exceptions.
Non-deductible scenarios:
Premiums typically cannot be deducted when a business purchases life insurance on key employees or owners for succession planning or protecting shareholders.
Deductible exception:
Premiums may be deductible when:
- Life insurance is required as collateral for a business loan
- Life insurance is used to secure financing
Key person insurance (also known as business owner insurance):
Premiums are generally not deductible for key person insurance. The only exception is if a policy is assigned to a creditor as loan security.
Due to the complexity of these rules, it’s important to consult with a tax professional to see if your specific business situation qualifies for a deduction.
Are health insurance premiums for businesses tax deductible?
Yes, health insurance premiums for businesses may be deductible as a business expense, with specific considerations:
Deduction as business expense for self-employed individuals
Who can deduct: Self-employed individuals and business owners
Key advantages:
- May deduct private health insurance premiums as a business expense
- Alternative to claiming through the Medical Expense Tax Credit (METC)
- Provides more favourable tax treatment by directly reducing business income rather than providing a non-refundable credit
Eligibility requirements:
- Income source. Your income must come from active business activities.
- Business engagement. You must be actively engaged in the business and the expense must be reasonable and related to earning business income.
- Important restriction: You cannot claim the same premiums both as a business expense and as medical expenses under the METC.
Comparing business expense deduction vs. METC
| Business expense deduction | METC |
|---|---|
|
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Recommendation: Consult with a tax professional to analyze which approach maximizes your tax benefits.
Consult a tax professional or the CRA for guidance
Tax rules for insurance premiums can be complex and vary significantly based on your specific situation, including employment status, business structure, and types of insurance coverage. A qualified tax professional, such as a Chartered Professional Accountant (CPA) or tax lawyer, can help:
- provide personalized guidance,
- maximize eligible deductions and credits, and
- ensure full compliance with CRA requirements.
CRA resources: The CRA also provides comprehensive guidance through its official website, publications, guides, and bulletins.
Benefits of reviewing CRA materials: It helps ensure you understand current rules and requirements.
Connect with a Sun Life advisor
While a tax professional provides essential guidance on tax deductions and compliance, a Sun Life advisor can help you make informed decisions about your insurance coverage needs.
Although Sun Life advisors can’t provide legal or taxation advice, they can work collaboratively with your tax professional so that your insurance planning complements your overall plan. This coordinated approach helps ensure you have both the right coverage protection and optimal tax treatment.
Why work with a Sun Life advisor? Our advisors can review your insurance policy, help you understand different types of coverage available, and recommend appropriate solutions for your personal or business needs. They can explain how various insurance products work, help you assess coverage gaps and create a comprehensive insurance strategy that meets your financial goals.
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This article only provides general information. Sun Life Assurance Company of Canada and the author do not provide tax advice. Before acting on information in this article, individuals and corporations must seek advice from a qualified professional like an accountant or lawyer.
