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In August the Department of Finance published their changes to the taxation of life insurance as previewed in March 2013 Federal Budget.  When final legislation is passed later this year, these changes will result in an updating to the “exempt test” which determines how much tax-deferred value can accumulate in a life insurance policy before it is subject to accrual taxation.  The new rules take effect and will apply to policies issued January 1, 2016 and later.

Highlights of the new rules and their affect


For Cash Value Life Insurance:

  • Effective with policies issued after 2015 the new rules will reduce the ability to tax-shelter accumulating cash values;

The bottom line – Permanent cash value life insurance policies purchased after 2015 will lose valuable benefits.

The opportunity – Policies purchased before 2016 will be grandfathered from these changes.


For Life Insurance used as collateral for business or investment loans:

  • For policies  of standard risk purchased after 2015 changes in the Net Cost of Pure Insurance (NCPI) will result in a lower deduction for income tax purposes;*
  • For policies of sub-standard risk (rated for poorer health etc.) purchased after 2015, the changes in the NCPI will result in a higher deduction for income tax purposes;
  • Policies purchased before 2016 will be grandfathered as to the current rules.

The bottom line – *Business owners or investors who borrow for investment or business purposes will experience a reduction in their collateral insurance tax deductions.

The opportunity – Purchase before 2016 and you will be grandfathered


For Prescribed Life Annuities:

  • After 2015 The mortality table used for calculating annuity income has been updated;
  • This table projects a longer life expectancy resulting in an increase in the taxable portion of the annuity income.

he bottom line – For prescribed Life Annuities issued after 2015 the after- tax annuity income will be less with this change.

The opportunity – Purchase your Prescribe Life Annuity before 2016.


It’s important to remember that the death benefit of life insurance policies are unaffected by these changes and are still paid out tax-free.

Consider reviewing your life insurance now to ensure that you have the proper amount and type of coverage.  Call me to discuss how you can take advantage of the grandfathering status for new purchases prior to the end of 2015.  You can also use the social sharing buttons below to share this article with a friend or family member you think might benefit from this information.