Can aliyah affect (Canadian) life insurance?


Since your RRSP has a long-term role in your overall planning, it is important to know how Canada and Israel will tax it after Aliyah. The same is true for life insurance policies.
When leaving Canada, it is likely that you will still need insurance for your estate. Although the purpose of the policy may change over time, there is usually a long-term role for life insurance in estate planning.

For those policies owned personally, leaving Canada generally does not trigger a tax event. However, for company-owned policies, the cash value of the policy may have an effect on the value of the shares of the company. This will be relevant when, upon departure, you are deemed to have disposed all your assets including shares of a company.

Life insurance plays many roles in estate planning and is likely to be among the assets you will maintain when you leave Canada. For example, life insurance policies may be purchased to fund: capital gains tax; estate equalization planning; emergency expenses or for children/grandchildren; pay for final expenses such as funeral costs; a buy/sell agreement; wealth used for deferred departure tax payments of the estate, and investment funds that grow on a tax-deferred basis.

There are many different types of life insurance policies available in Canada. For example: yearly renewable term, term-100, whole life and universal life policies. The latter three are often referred to as “permanent insurance” policies. Policies that are not referred to as permanent insurance policies generally expire, lapse, are cancelled or are converted to permanent policies as an insured reaches life expectancy and beyond.

Israel does not market permanent insurance policies.In Canada and in Israel, insurance proceeds received on the death of the life insured are generally not taxable. Similarly, the premiums you pay for your life insurance policy are typically not tax deductible.

It is important to ensure that the terms of your policies are not affected by ceasing to be a resident of Canada. A similar review should be conducted for your critical illness policies as sometimes insurance carriers will not provide coverage when a person ceases to be a resident of Canada.

Other types of insurance, like disability insurance and critical illness insurance, may not cover you after making Aliyah. For example, disability insurance policies cover individuals from loss of income in case they are incapacitated by illness or physical disability. Disability insurance is a policy that pays benefits to a beneficiary when the policy holder suffers a disability that impacts his or her ability to work.

Critical illness insurance is where the insurer is contracted to typically make a lump-sum cash payment if the policyholder is diagnosed with one of the critical illnesses listed in the insurance policy. Generally, benefits are not payable for a covered condition resulting from commission of a criminal offence; operation of a motor vehicle while intoxicated; self-inflicted injuries; use of alcohol, drugs or toxic substances; or acts of war.

For all types of insurance policies, seek guidance from a professional and refer to your policy for further details of the Covered Conditions, Exclusions and Limitations, and the coverage period.

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