Leaving Canada? What Happens to Your Life Insurance Policy and Its Tax

You accept a job in another country, or you decide to retire where a child lives. The list of things to settle is long: the lease, the accounts, the car, the last tax return. The life insurance policy usually sits near the bottom, because it seems to come with you on its own.

Does it? Mostly, yes. The contract does not end at the border. But the tax rules around it change the day you stop being a resident of Canada, and most people only find out when they try to take money out. A surrender that would have been a line on a Canadian return becomes a payment where the insurer may hold back half of the amount above a certificate limit. A policy loan you planned to take in year twelve becomes a question to put to the insurer first. None of this is a reason to cancel a policy before you go. It is a reason to understand it before you go, while you can still sit across a desk from the people who can answer.

This page sets out what happens to an individually owned policy when its owner leaves Canada: the departure tax, a surrender from abroad, a policy loan, the death benefit, the premiums and the questions to ask before you pack. It quotes the Income Tax Act and the Canada Revenue Agency as they read on 2 November 2026. It does not replace your accountant, and it says where the answer depends on the country you move to.

Here is what happens, one step at a time.

What happens to your life insurance policy when you leave Canada?

The contract stays in force as long as the premiums are paid. Leaving Canada does not cancel a life insurance policy, and Canada does not treat an interest in a life insurance policy in Canada as sold on the day you emigrate, unless it is a segregated fund policy. What changes is how any later disposition is taxed and paid.

A life insurance contract says what the insurer pays when the life insured dies, what you pay in premiums, and what you can do with the contract while you are alive: surrender it, borrow against it, change the beneficiary. None of those terms mentions where you live.

For a specially designed, high-cash-value, participating whole life insurance policy, that means the guaranteed values in the contract keep building as long as premiums are paid, and dividends continue to be declared each year by the insurer's board. Dividends are not guaranteed. A lower dividend slows future growth but does not reduce cash value already credited. None of that depends on your address.

What does depend on your address is the tax system you belong to. While you are a resident of Canada, the Income Tax Act treats you as a Canadian taxpayer on your worldwide income. As a non-resident, you are taxed only on certain Canadian sources, and special rules let Canada collect that tax from someone it can reach. For a life insurance policy in Canada, the someone it can reach is the insurer.

So the policy comes with you. The rules for taking money out of it stay behind, in Canada, and they are stricter for an owner who no longer lives here. The practical side of the move, such as who services the file, is in the answer on moving out of Canada; this page covers the tax side.

Does Canada tax the policy on the day you leave?

No, not an interest in a life insurance policy in Canada. On emigration, Canada deems most property sold at fair market value, but the Income Tax Act leaves out an excluded right or interest, and that definition names an interest in a life insurance policy in Canada, other than the part tied to a segregated fund.

When an individual stops being a resident, subsection 128.1(4) of the Income Tax Act treats them as having sold most of their property at its fair market value just before leaving. People call the result the departure tax. Shares, mutual fund units and other capital property can produce a gain on that day, even though nothing was actually sold.

The same paragraph carves out exceptions. Subparagraph 128.1(4)(b)(iii) leaves out an excluded right or interest, and subsection 128.1(10) defines that term with a list. Paragraph (l) of the list is an interest of the individual in a life insurance policy in Canada. The only part it does not cover is the part of a policy tied to a related segregated fund trust, which is the fund part of a segregated fund contract.

The Canada Revenue Agency's page on dispositions of property for people leaving Canada says the same thing in plain words: among the exceptions to the deemed disposition, it lists interests in life insurance policies in Canada, other than segregated fund policies. The page was last modified on 20 January 2026.

In practice, the gain inside the policy is not taxed on the day you leave. The adjusted cost basis and the cash value stay what they were. Tax waits until something actually happens to the policy: a surrender, a withdrawal of paid-up additions, a policy loan large enough to count, or the death of the life insured.

That postponement is the good news. The rest of this page is about the day it ends.

Do you report the policy on your departure return?

Possibly, and your accountant decides. The Canada Revenue Agency asks for Form T1161 when the fair market value of all the property you owned on leaving is more than $25,000. Its page does not say whether a life insurance policy belongs on that form, so ask before you file.

The year you leave, you file a Canadian return that covers the part of the year you were resident. Form T1161 lists the property you owned when you left. The Agency's page on dispositions of property sets the threshold at more than $25,000 of fair market value, all property counted together.

The same page lists some items you do not have to include on the form. Life insurance is not among them, and it is not among the items to include either. That silence is not an answer, and this page will not fill it with a guess.

Take the question to your accountant with three documents: the latest annual statement, the insurer's figure for the adjusted cost basis, and the cash surrender value on your departure date. The accountant decides what goes on the form, and the conversation belongs before the filing deadline.

What happens if you surrender the policy while you live abroad?

The insurer is treated as the buyer. Under subsections 116(5.3) and 116(5.4) of the Income Tax Act, it can be liable for 50% of the amount above the limit in a certificate, and it may hold that back from what it pays you, unless a certificate covers the payment.

For a resident of Canada, a surrender works the way the cash surrender value page describes. The insurer pays you the cash surrender value, less any loan, and subsection 148(1) includes in your income the amount by which the proceeds exceed the policy's adjusted cost basis. You report the gain on your return, and the insurer sends you a slip.

For a non-resident, the Act adds a collection step. Subsection 116(5.4) says that when a non-resident disposes of a life insurance policy in Canada under subsection 148(2) or certain paragraphs of the definition of disposition in subsection 148(9), the insurer is deemed to be the taxpayer who acquired the policy, for an amount equal to the proceeds of disposition. A surrender is one of those dispositions.

Subsection 116(5.3) then makes that buyer liable for tax of 50% of the amount by which its cost exceeds the certificate limit. The insurer may deduct or withhold that amount from what it pays you, and it must remit it within 30 days after the end of the month of the acquisition. In plain terms: unless a certificate covers the payment, the insurer can hold back half of what is not covered.

The certificate comes from subsection 116(5.2). The Minister issues it once the non-resident pays an amount the Minister accepts in respect of the disposition, or gives acceptable security. The certificate fixes a limit, and the 50% applies only to the part of the payment above it.

Two things follow. The amount held back is a collection step, not a final verdict: what you finally owe on the gain is worked out separately, by your accountant in Canada and in your new country. And the process takes time, so ask the insurer how long a non-resident surrender usually takes before you count on the money.

Before you sign a surrender request from abroad, ask the insurer three things in writing: the adjusted cost basis on the date of the request, the proceeds, and how it handles the certificate. Then take those figures to your accountant.

What is form T2062B, and who files it?

It is the Notice of Disposition of a Life Insurance Policy in Canada by a Non-Resident of Canada. The life insurer files it for the non-resident policyholder when the policy is disposed of and the owner lived in Canada when the policy was issued.

You do not usually fill this form in yourself. The Canada Revenue Agency's page says the life insurer files it for a non-resident policyholder when the policy is disposed of and the policyholder was a resident of Canada when it was issued or effected. That describes most people who buy here and later move away.

The form is the insurer's half of the process in section 116: it tells the Agency that a non-resident has disposed of a policy. Your part is to answer the insurer's questions promptly, keep a copy of everything it sends you, and send anything you do not understand to your accountant before you sign it.

Is a policy loan treated differently once you are a non-resident?

A policy loan is a disposition under subsection 148(9) of the Income Tax Act, wherever you live. When the loan is larger than the adjusted cost basis, the excess is income. Ask the insurer, before you borrow from abroad, whether such a loan would be handled under the non-resident rules of section 116.

Paragraph (b) of the definition of disposition in subsection 148(9) includes a policy loan made after March 31, 1978. For a resident, that is the rule the policy loan tax page explains: the loan reduces the adjusted cost basis, and when the loan is larger than that basis, the difference is included in income under subsection 148(1).

Many policy loans stay below the adjusted cost basis, so no income arises. That part does not change when you move. What may change is the way a loan above the basis is handled, because subsection 116(5.4) refers to certain paragraphs of the definition of disposition, and this page will not tell you which ones apply to your loan without seeing the insurer's answer.

So the order is simple. Ask the insurer for the adjusted cost basis. Ask how a loan above it would be processed for an owner who lives outside Canada. Ask your accountant what the answer means for your return in Canada and in your new country. Then decide.

The loan itself works the way it always did. The insurer lends against the cash value, charges interest and receives it. Unpaid interest is added to the loan, and if the loan grows larger than the cash surrender value, the contract can lapse. The policy loans page sets out each rule. Distance only makes them easier to forget.

What happens to the death benefit if you die while living abroad?

A payment made because of the death of the person whose life was insured is not a disposition under subsection 148(9), so it does not create a policy gain in Canada. The country where you or your beneficiaries live may have its own rules, and a tax professional there checks them.

The definition of disposition in subsection 148(9) excludes a payment under a policy in consequence of the death of any person whose life was insured under it. That is why, in Canada, a death benefit paid to a beneficiary does not carry the income tax that a surrender would. The tax page for life insurance explains the rule for residents, and the rule itself does not depend on where the life insured lived.

What does depend on where people live is everything around the payment. Your new country may tax estates, inheritances or amounts its residents receive in ways Canada does not, and your beneficiaries may live somewhere else again. A death certificate issued abroad may also need extra steps; the death claim page describes what an insurer usually asks for.

Keep the beneficiary designation current, with a way to reach each person named, and tell them who the insurer is. A designation nobody knows about helps nobody.

Can you keep paying premiums from another country?

The contract does not stop because you moved, but the premium still has to arrive. Ask the insurer how it accepts payment from an owner abroad, in which currency, and what happens if a payment fails. A missed premium is how distance turns into a lapse.

Most premiums are paid by preauthorized debit from a Canadian account. Many people close that account when they leave. If the debit fails and nobody notices, the contract does what its terms say: some designs use the cash value to pay the premium through an automatic premium loan, which adds to the loan balance; others move toward a reduced contract or a lapse. Neither outcome is what you planned.

Before you go, ask the insurer four questions. How can a non-resident owner pay? Is the premium always in Canadian dollars? Will it send notices to an address abroad, or by email? And how long is the grace period before a missed premium has consequences?

Then think about the currency. If your income will be in another currency, a premium in Canadian dollars will cost more in some years and less in others. Set it at a level your new income can carry, the same rule this site applies to every premium.

Update your address with the insurer. Mail that goes to an old address is the most common way an owner abroad misses a notice that matters.

Does your new country see the policy the way Canada does?

Not necessarily. The tax-deferred growth of a policy that passes Canada's exempt test is a Canadian rule. Your new country applies its own law to the policy and to what you take out of it. A tax professional in that country decides how.

In Canada, a policy that passes the exempt test in section 12.2 of the Income Tax Act and Regulation 306 is not taxed each year on the growth inside it. The tax-deferred growth page explains how that works. That treatment is part of Canadian law. Once you are a resident of another country, that country's law decides how it treats the policy you own, the growth inside it and the money you take out.

Some countries treat a foreign life insurance policy much as Canada does. Others tax the growth each year, or require the policy to be reported. This page will not list countries: the rules change, and they are not ours to interpret.

If you are moving to the United States, the cross-border page sets out the rules this site has read on both sides of that border. For any other country, ask a tax professional there before you move, not after the first return arrives.

What should you ask before you leave?

Ask the insurer for the figures and its process for owners abroad. Ask your accountant about the departure return and Form T1161. Ask a lawyer or notary about your will and designations where you will live. Ask your licensed insurance professional to review the policy with you before the move.

Distance makes every answer slower to get. So collect the answers while you are still here. To the insurer:

1. What is the adjusted cost basis, the cash surrender value and the loan balance today?
2. How do you service owners who live outside Canada: payments, notices, changes?
3. How would a surrender or a policy loan above the adjusted cost basis be processed for a non-resident, including form T2062B?
4. How long does a non-resident surrender usually take?
5. Is any part of this contract a segregated fund?

To your accountant: does the policy belong on Form T1161, what goes on the return for the year you leave, and what does your new country require? To a lawyer or a notary: do your will and your beneficiary designations still work under the law where you will live?

And to your licensed insurance professional: does the premium still fit your new income, and is the design still the right one? A review now costs an hour. A lapse discovered three years later costs far more.

What if the policy is owned by a corporation, or you move it to someone else?

Then this page is not your page. A policy owned by a Canadian corporation stays the corporation's, and its rules belong to the corporate pages. Moving the policy to a new owner before you leave is a disposition with its own rule. Read those pages, and ask your accountant first.

Everything above is about a policy owned personally by the person who leaves. When a corporation owns the policy, the corporation does not move because its shareholder does. The corporate ownership page explains how such a policy is taxed, and your accountant decides what your move changes for the company.

Some people think about giving the policy to a child or a spouse who stays in Canada. A change of owner is a disposition under section 148, and subsection 148(8) sets a special rule for some transfers within a family. The page on moving a policy to a new owner reads each case as the Act sets it out. Decide that question before you leave, with your accountant, because the answer depends on who you are when the transfer happens.

If you are applying for a new policy while you travel or live abroad, that is a question of underwriting rather than tax, and the travel and residency page covers it. The rest of the whole life insurance section explains the contract itself.

What this page will not tell you

It will not tell you what you will finally owe on a surrender. That depends on your adjusted cost basis, on your new country's law and on any tax treaty with Canada. It will not tell you whether a treaty cuts anything. It will not say which rule the insurer will use for a given policy loan. It will not say how your new country treats the policy, its growth or a death benefit. And it will not tell you whether to keep the policy.

What it does tell you is where the rules sit, as they read on 2 November 2026, and which questions to ask before you move. The figures come from the insurer. The tax answers come from your accountant, here and where you will live.

Who this does not suit

This page is not for a policy owned by a corporation, a trust or a partnership. It is not for a segregated fund contract, whose fund part is treated differently on departure. It is not for someone who left Canada long ago and already has professionals abroad who know the file. And it is not for anyone looking for a way to take money out of a policy without tax: there is no such route on this page, and the rules above are there to make sure there is none.

If you are about to move and own a specially designed, high-cash-value, participating whole life insurance policy yourself, it is for you. Read it before the movers come.