As we mentioned in previous article, critical illness insurance is a type of insurance which will pay a lump tax free benefit to the insured if he is diagnosis of one of the critical illnesses covered by the policy. The benefit is intended to help insured persons maintain their quality of life and financial independence after suffering a life-threatening illness. In this article, we will discuss the taxation of critical illness insurance.
Critical Illness policy is considered to be an accident and sickness policy.
a) If the policyholder, the insured, the payer of the premium and the beneficiary are all the same person, the premium are not tax deductible and the benefits are tax free.
b) In a key person
If premiums are not deducted as business expenses then the benefit is tax free if the key person insured is designated as the beneficiary. If the business is the beneficiary of the policy then premium is tax deductible and benefit is taxable.