Taxes and critical illness insurance: Will your critical illness benefits be taxed?
Critical illness insurance proceeds, as a rule, are not taxable, in the same way as life insurance proceeds are not taxable. The purpose of critical illness insurance is to fund necessary expenses in an effort to recover from the critical illness.
Anything you receive from the insurance company as a result of your being diagnosed with a critical illness is not counted as income or gains. You did not earn anything because this is to compensate you for your sickness.
This is one of the distinct advantages of getting a critical illness insurance policy. You are able to receive some funds to help you pay for your treatment without having to worry that this amount will be reduced by taxes.
However, if you surrender the policy, there may be instances when the money you get from surrendering the policy. By “surrender”, we refer to your giving up of any future rights to the policy. This means that the critical illness cover ends in exchange for a certain amount of money. However, no gains will also be counted for a surrendered policy if the policy has been in force for at least 10 years, there have not been any changes to it, as well as all premiums have been paid on time.
The best thing to do is to ask an accountant about how you need to report what you have received from the insurance company. The proceeds of a critical insurance claim are tax-free, yes, but you may need to indicate this in your income-tax return.
Recommended useful information to read:
- Are you at risk? Critical Illnesses you may be susceptible to
- Things to consider before getting a critical illness insurance policy
- What you should know about Your Critical Illness Cover: The exclusions to your policy
- Save Up on Premiums: factors that affect Your Critical Illness Insurance premiums
- Dos and Don’ts When Making Critical Illness Insurance Claims
