Net Cost of Pure Insurance (NCPI)

The Net Cost of Pure Insurance (NCPI) is the tax cost of an insurance policy.

\begin{align} NCPI = NAAR \times Prescribed Mortality Rate \end{align}

There are different ways to define the Net Amount At Risk (NAAR), the pure amount of insurance. Here is a common formula.

\begin{equation} NAAR = Death Proceeds - Account Value \end{equation}

The Prescribed Mortality Rate increases each year as the insured ages.

Tax Deductibility of the NCPI

The portion of the life insurance premium that is deductible is the lesser of

  • the premium paid in the year and
  • the NCPI

provided the following conditions are met:

  1. the policy is assigned to a Restricted Financial Institution such as a bank, trust company, credit union or insurance company in the course of borrowing from that institution
  2. the interest on the loan is tax deductible
  3. the assignment of the insurance policy is required by the Restricted Financial Institution as collateral for the borrowing

For more details, refer to Interpretation Bulletin IT-309R2.


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