Can I Get a Tax Deduction for My Life Insurance Premium and If So, How?

According to the Canadian Life and Health Insurance Association, 22 million Canadians have one or more life or health insurance products. The average amount held by individuals is $169,000, and by households it’s $337,000.

A popular question, especially come tax time, is “can I deduct my life insurance premium?” In most instances, including in the case of life insurance purchased by a business, premiums are not a deductible expense. However, there are two exceptions:

If the life insurance policy names a registered charity as the beneficiary, the insured can obtain a charitable donation receipt for the amount of the policy premium, which the insured can then claim on their taxes as a deduction.

Secondly, if the insured is applying for a loan and the institution lending the funds requests that he or she buy life insurance as collateral, a portion of the premiums on that policy qualify as a deductible expense.

However, aside from these exceptions, life insurance premiums are most often not deductible, but life insurance itself still offers numerous tax advantages.

Life insurance death benefits are not subject to tax. This includes amounts over and above the policy’s initial face amount.  For example, whole life and universal life policies offer lifetime protection and, in many instances, an increasing death benefit. The advantage from a tax standpoint is the death benefit grows on a tax-sheltered basis and is paid out to the beneficiary tax-free.

Cash values within universal life and whole life policies can also grow on a tax-sheltered basis.

When premiums are paid by funds within the policy, the insured is paying his or her premiums with pre-tax dollars rather than after-tax dollars

For more details on life insurance in Canada, please contact us at 1.866.899.4849 or visit our Term Life Insurance Instant Quote Page or our Whole Life Insurance Instant Quote Page.