Transfer a life policy's ownership, during life or on death, and see who gets taxed. Rollovers to a spouse or a life-insured child defer the gain; other transfers trigger it. Policy gain = deemed proceeds − adjusted cost basis (ACB).
Only applies when the recipient is a spouse. The rollover is automatic unless you elect out on your tax return.
The policy's tax cost. Gain = deemed proceeds − ACB.
The compensation paid. Only used for an arm's length sale during life.
Policy gain triggered by recipient
How this works. Transferring ownership of a life policy is a disposition, and the tax
hinges on who receives it. A rollover means the deemed proceeds equal your ACB, so no policy
gain is triggered; the recipient simply inherits your ACB.
Spouse: automatic rollover (proceeds = ACB, gain $0). While you're alive, income attribution taxes any future gain back to you. You may elect out to trigger the gain now and step up your spouse's ACB.
Child / grandchild: rolls over only if that child (or the child's child) is the life insured and nothing is paid. The future gain is the child's, unless they're under 18, when it attributes back to you.
Other non-arm's length party: deemed proceeds equal the CSV (less any policy loans) even if you gave it away, so the gain is taxed to you now.
Arm's length buyer: proceeds equal the price paid; the buyer's ACB becomes that price.
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.