If coverage is provided to a retired employee for the year under a paid-up life insurance contract, the value of the taxable benefit corresponds to the portion of the single premium (and of the related tax) that can reasonably be attributed to the coverage and benefits provided to the person for any period of the year.

This portion of the single premium must be calculated on the number of years the person can reasonably be expected to have the coverage (the “applicable period”).

Coverage until a set age

If the paid-up life insurance contract covers the retired employee until they reach a set age, the applicable period is generally the number of years between the time the coverage takes effect and the set age. This number must be used to calculate the portion of the single premium that constitutes a taxable benefit.

Coverage until death

The same principle holds for a paid-up life insurance contract that covers a retired employee until their death. In this case, the applicable period is generally the number of years between the time the coverage takes effect and the person's normal life expectancy. This number must be used to calculate the portion of the single premium that constitutes a taxable benefit.