Principal Issue: [TaxInterpretations translation]
Does a withdrawal of the cash value of a life insurance policy constitute a "policy loan" when the terms and conditions of the policy are silent on the possibility of making a "policy loan"?
Position:
Even if the life insurance policy is silent on the possibility of making a "policy loan", this does not in itself mean that the withdrawal is not a "policy loan".
Reasons:
The wording of the definition of "policy loan" in subsection 148(9) of the Act is sufficiently broad to permit this interpretation. This determination remains a question of fact.
FINANCIAL PRODUCTS ROUNDTABLE
APFF - CONFERENCE 2003
Question 8
Policy loan
Under the terms and conditions of a universal life insurance policy, the policyholder may withdraw an amount of money from the cash surrender value of the policy. Both the amount of the benefit otherwise payable at death and the cash surrender value are reduced by the amount of the withdrawal. However, the withdrawal is not referred to as a "policy loan" in the policy.
Can the withdrawal be considered a "policy loan" as defined in ITA subsection 148(9)?
CCRA Response
Even if the withdrawal is not referred to as a "policy loan" under the terms and conditions of the policy, this does not mean that the withdrawal is not a "policy loan" within the meaning of subsection 148(9).
The definition of "policy loan" is broad enough to allow for this interpretation, as it defines "policy loan" as "an amount advanced by an insurer to a policyholder in accordance with the terms and conditions of the life insurance policy."
Consequently, the terms of the policy must be examined before a conclusion can be drawn. Thus, determining whether a withdrawal qualifies as a "policy loan" remains a question of fact.
Michelle Desrosiers
October 10, 2003
2003-003712