10 December 2003 External T.I. 2003-0026385 - CRITICAL ILLNESS INSURANCE

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Will a critical illness policy be a sickness policy for purposes of the Act if the premiums are paid over a shorter time period than the related coverage?

Position:

The funding of the policy is not determinative, in and of itself, of the policy's character for purposes of the Act.

Reasons:

The characterization of a critical illness policy for purposes of the Act will depend upon all the terms and conditions of the contract and the applicable insurance legislation.

XXXXXXXXXX     							2003-002638
R. Maley
December 10, 2003

Dear XXXXXXXXXX:

Re: Critical Illness Insurance with Limited Premium Paying Period

This is in response to your letter of June 19, 2003 requesting our comments as to whether a critical illness policy would be viewed as a sickness policy for purposes of the Income Tax Act ("the Act") if the premiums are prepaid to some degree. For example, if a critical illness policy provides coverage to age 100 and all the premiums under the policy are payable within the first 10 years of coverage, will the policy be treated as a sickness policy?

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

The characterization of a critical illness insurance policy for purposes of the Act depends upon all the terms and conditions of the policy and the applicable insurance legislation. The manner in which the policy was funded would not, in and of itself, be determinative in this regard. Where the terms and conditions of a critical illness policy provide benefits only in the event of critical illness and the provision of that insurance is clearly the purpose of the contract, the policy in our view would likely be a sickness policy for purposes of the Act.

We trust that our comments will be of assistance to you. However, as stated in paragraph 22 of Information Circular 70-6R5, this opinion is not a ruling and consequently is not binding on the Canada Customs and Revenue Agency in respect of any particular situation.

Yours truly,

F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch