| As we mentioned in previous article, critical illness | | | | shareholders. As a result, critical illness benefits payable |
| insurance is a type of insurance which will pay a lump | | | | to a private corporation can only be paid out as either |
| tax free benefit to the insured if he is diagnosis of one | | | | taxable employment income or taxable dividends. |
| of the critical illnesses covered by the policy. The | | | | Therefore, it could be significant implications where the |
| benefit is intended to help insured persons maintain | | | | critical illness benefit is intended to be used by the |
| their quality of life and financial independence after | | | | shareholders as part of a buy/sell arrangement, or to |
| suffering a life-threatening illness. In this article, we will | | | | fund personal expenses arising from the critical |
| discuss the taxation of critical illness insurance. | | | | illness.d) Corporation critical illness insurance |
| Critical Illness policy is considered to be an accident | | | | Some employers have incorporated critical illness |
| and sickness policy.a) If the policyholder, the insured, | | | | coverage into a wage loss replacement plan If the |
| the payer of the premium and the beneficiary are all | | | | premiums for such coverage are deductible as a |
| the same person, the premium are not tax deductible | | | | business expense to the employer then the benefit are |
| and the benefits are tax free.b) In a key person | | | | not taxable to the employee because they are not |
| If premiums are not deducted as business expenses | | | | payable on a periodic basis. If the employee suffers a |
| then the benefit is tax free if the key person insured is | | | | critical illness, benefits will be paid directly to the |
| designated as the beneficiary. If the business is the | | | | employee under the critical illness policy. |
| beneficiary of the policy then premium is tax deductible | | | | Some insurers are now offering one policy that |
| and benefit is taxable.c) Small business owners | | | | includes both critical illness coverage and life insurance. |
| purchased critical illness insurance on themselves. | | | | The application is underwritten for both benefits at the |
| When setting up ownership in a private corporation, | | | | time of sale. One premium is paid and it funds all the |
| one significant concern is that there is no mechanism | | | | benefits under the policy and It makes even more |
| similar to the capital dividend account to permit the | | | | complicated to the taxation of the policy. |
| benefits to be paid out on a tax-free basis to | | | | I hope this information will help. |