In the context of life insurance in Canada, the “net cost of pure insurance (NCPI)” is a measure used to determine the cost of the pure insurance portion of a life insurance policy. It represents the annual mortality cost associated with providing the death benefit coverage under the policy. NCPI is calculated based on the insured’s age, gender, and the mortality rates set out in the Income Tax Regulations.
Key aspects of NCPI include:
Mortality cost
Reflects the cost of providing the death benefit coverage.
Annual calculation
Determined on an annual basis.
CRA prescriptions
Uses the mortality rates set out in the Income Tax Regulations.
NCPI is important for determining tax implications and the policy’s adjusted cost basis for tax purposes. Each year’s NCPI is subtracted from the policy’s adjusted cost basis.