How Can I Pay My Life Insurance With Pre-Tax Dollars Rather Than After-Tax Dollars?

According to Swiss Re, Canadians pay $45.7 billion in annual premiums. Life Insurance premiums are only tax deductible in Canada if one of the conditions below is met:

1. If you purchase a life insurance policy and name a registered charity as the beneficiary, you can obtain a charitable donation receipt for the amount of the policy, which you can claim on your taxes as a deduction.
2. If you are applying for a loan and the institution lending the funds requests that you buy life insurance as collateral, a portion of the premiums on that policy qualify as a deductible expense.

However, even if you can’t deduct your life insurance premium, you can still pay the cost of insuring yourself with pre-tax rather than after-tax dollars. How can this be? See below:

A Permanent policy, such as a Universal Life policy, is purchased and an amount above the cost of insurance is deposited into the policy. These funds will grow on a tax-sheltered basis so long as they do not exceed the Maximum Tax Actuarial Reserve (MTAR) limit specified within the policy. Whole Life policies set the premium, so as not to exceed the MTAR limit, and Universal Life policies set a maxium premium, which keeps the MTAR limit in mind.

You can then use this investment component to pay for future premiums, allowing you to pay them with pre-tax dollars as well.

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 and our Whole Life Insurance Instant Quote Page.