Critical Illness: Corporate

Surviving a critical illness is quite common in today's advanced medical world.

Within a corporate setting the premiums are typically paid for by the company. Thus, the benefit is received by the corporation on a tax-free basis. Should the critical illness benefit then be paid to the individual, it would be subject to taxation as a dividend.

If the corporation is to use a group option, they can deduct the premium and the individual can receive the benefits tax-free. It should be noted that this policy cannot be offered exclusively to shareholders; it must be applied to a class of employees (for example, all managers).

The following table contrasts the premium, benefit, and tax consequences of a personal policy, and two opportunities through a corporate policy (with one person covered under a policy, the other with two or more covered under group policies).

	Personal	Corporate (one policy)	Corporate (two or more group policies)
Premiums	Paid by individual	Paid by corporation (not tax deductible)	Paid by corporation (has the option of being expensed and therefore tax-deductible)
Benefits	Received tax-free	Received by corporation tax-free	Received by individual tax-free.
“Return of Premium” rider	Paid by individual	Company pays for the insurance, individual pays for the Return of Premium Rider	Not available
When premium returned	Received tax-free	If received by corporation: tax-free. If taken out by insured: Marginal personal tax rate	Not available