As of January 1, 2017, changes to the Income Tax Act affect the taxation of new life insurance policies.
Under the new legislation, strategies such as maximum funding tax-exempt life insurance policies allow less tax-advantaged accumulation over the long run, resulting in reduced tax efficiency.
On policies issued before January 1, 2017, you can take advantage of the following benefits:
• Larger deposits over the lifetime of your tax-exempt policy
• Larger tax-free benefit at death on corporate-owned policies
• Larger deduction on collateral life insurance
• Lower costs for Level Cost of Insurance
The new taxation rules have resulted in price increases for Level Cost of Insurance (LCOI) in tax-advantaged plans because the investment income tax that insurers must pay will rise. Generally, insurers absorb this tax and include it in the price that is paid by the client. The increase for LCOI rates is 5% to 15%. In addition, insurance companies have raised rates even further to offset the continued impact of low interest rates.