Net Cost of Pure Insurance (NCPI)
The Net Cost of Pure Insurance (NCPI) is the tax cost of an insurance policy.
(1)\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.
(2)\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:
- 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
- the interest on the loan is tax deductible
- 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.
Other
- Demystifying the NCPI
(RBC Insurance)
- Are insurance premiums deductible?
(Sun Life, Dec 2011)
page revision: 5, last edited: 07 Apr 2014 20:36