See how a permanent policy's adjusted cost basis builds then erodes, and the taxable gain when you surrender, withdraw, or borrow.
How this works. For a policy last acquired after 1 Dec 1982, adjusted cost basis (ACB)
builds as cumulative premiums minus the cumulative net cost of pure insurance (NCPI). Because NCPI
rises every year with age, ACB climbs early then bends back down, often toward zero, even while the cash
surrender value (CSV) keeps compounding. A policy gain is proceeds of disposition minus ACB,
and 100% of it is taxable. Partial surrenders and withdrawals prorate the ACB; a policy loan is tax-free up to
the ACB and only creates a gain on the excess. Curves are illustrative; a real insurer supplies your actual ACB.
Educational illustration of standard Canadian insurance concepts. Figures are illustrative, not an insurer’s rates.
Illustration only, not a quote or advice. Figures are simplified for education and do not
reflect any specific insurer's rates. Consult a licensed advisor.