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Corporate Owned Critical Illness Insurance

Corporate-Owned-Critical-Illness-InsuranceThis is a confusing topic since critical illness is also offered in many group insurance plans. Therefor we need to make a clear distinction between the two types of critical illness insurance policies. If critical illness is part of a group plan than there is no gray area, the company pays the premium and the employee get a tax free benefit.

The grey area is with individual critical illness policies and the tax treatment of return of premium benefits. The premiums for stand-alone critical illness policies are not tax deductible to the corporation. There are a number of arrangements to fund critical illness insurance policies that may allow premiums to be tax deductible. A critical illness insurance policy can be purchased in a wealth and welfare trust, or with shared ownership.

The current legislation is not clear on this issue. If you are contemplating purchasing a corporate owned critical illness insurance policy with a return of premium rider for one of your employees or shareholders, we recommend that you seek independent legal and accounting advice. These arrangement may be beneficial in certain circumstances. The future tax treatment of these arrangements is not clear at this time. Stone-Hedge Financial Group Inc. takes a conservative approach and would avoid these types of arrangements.

There have been a number of insurance companies and newspaper articles that have published commentaries on this topic. The only certainty that can be drawn from all the commentaries is the uncertainty of the future tax treatment of these types of arrangements.

 

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