Insurance of any nature can be expensive. Plus, there are several different types of insurance policies. They vary according to what people may need and want. Also, one of these is life insurance. To save a little bit on the cost, some ask if it is tax-deductible.
Most will admit that the tax system in Canada can be complex. Often there is no straight answer to a simple question. The same applies to the question is life insurance tax-deductible in Canada. The basic answer is no, but there can be exceptions.
How Is Your Life Insurance Paid For?
The methods of payment for life insurance can create exceptions to the tax question. Also, who is going to be the beneficiary can play a role in the tax implications.
Life Insurance and The Beneficiary
A good number of people like to make charitable donations. Those that do have their preferences of charitable organizations. Plus, some will make one-time contributions. Others will make ongoing donations. Then there are some that choose to make a charitable organization a beneficiary. Therefore, they may choose to do this with their life insurance policy.
A Charitable Gift
The tax program in Canada allows for a deduction of charitable gifts. An insurance policy with a charity as the beneficiary is a charitable gift. Therefore, the premiums may qualify as a tax deduction. Keep in mind that there are specific rules as to the amount of money that’s claimed. As it pertains to a charitable deduction. However, only a percentage applies to help reduce taxes.
Also, valid proof of this charitable gift is mandatory. The charitable organization named as the beneficiary should give the benefactor a receipt.
One should also check to see that the charitable organization is one that the CRA recognizes. It is worth checking with the CRA about this.
Plus, it is important to keep in mind that the Canada Revenue Agency is always changing its policies. Keeping up with any changes in the priority of the taxpayers. Monitor the changes to see if it affects the life insurance policy that’s donated to a charity.
Life Insurance as Loan Collateral
There are times when individuals have to borrow money. As part of the loan agreement, there may be a requirement for life insurance. The life insurance is to cover the loan amount. If the borrower passes away, the insurance money covers the money owed to the lender. It means the life insurance is used as collateral. A portion of the premiums paid on this insurance is possibly used as a tax deduction.
Indirect Tax Benefits
Most often life insurance s taken out as financial protection. It is for the beneficiaries. As they are named on the policy. Individuals who receive the payout in most cases will not have to pay taxes. As it pertains to the money, they received from the life insurance. However, if there are amounts paid over the actual value of the policy it most likely will be taxable.
As a Tax Shelter
Some types of life insurance policies increase their value over time. This increase is tax-free money. It is an additional way of saving on tax implications.
Payment Tax Savings
Another option is to save a few extra dollars when it comes to taxes. Possibly through the way that the payments are for premiums are paid for. Normally premiums get paid with taxed money. Some life insurance policies allow for premium payments from the investment portion of the policy. The premiums are paid with money that hasn’t been taxed.
Life Insurance in Business
Life insurance in a business setting can be complex. Sometimes the business owners purchase life insurance through their company. Then there are life insurance policies for the employees. These all have their criteria for how they’re for tax purposes.
Employee Life Insurance
Employees pay for their life insurance coverage through the Company. Normally the deduction for this is the employee’s paycheck. These are the premium payments. The employee is paying them out of taxable income.
Group Term Insurance
Some employees provide life insurance as part of a benefits package for their employees. It is group term insurance. Plus, in this case, the employer pays the premiums. The tax break here goes to the employer. Most likely they will be able to claim the payments for premiums as a deduction. However, the premium is part of the employee’s income. So they’re on this.
Knowing the Tax Rights
It can get complicated. It is because of different types of life insurance policies. Taxpayers should discuss the tax implications regarding life insurance with their tax preparer. For businesses, this is something that their accountant will consider.
The Benefits of Life Insurance
Often the premiums for life insurance are not tax-deductible. At the same time, this insurance has a lot of benefits. In addition, a lot of people just want life insurance to protect their loved ones financially. For others, they look at life insurance for this purpose as well as for investment purposes. Also, there are different types of life insurance. Choosing the right type of policy will be important.
Insured individuals need to have a good understanding of the insurance they are buying.
Shopping for Life Insurance
Life insurance is an important commodity to have. No matter whether it includes investment purposes or not. Therefore shopping for it requires some attention. A good way to start is by getting some quotes.
These quotes can help to narrow down the choices of Insurance Companies. They focus on those offering this type of insurance. Then raising additional questions is an option. The questions should pertain to the specific needs of the individual who wants insurance.
Taking the time to shop this way means that one is going to get the best life insurance policy. Their specific needs determine the best choices.
Some individuals just want basic life insurance with the cheapest premiums. It is important to ensure that the basic amount is going to be adequate.