Indian Life Insurance & ULIPs for Canadian Residents: Tax, T1135 & Maturity Guide

1. Start by Identifying What Kind of Policy You Actually Own

“LIC policy” is not a Canadian tax category.

The first useful classification is practical:

Indian product	Main Canadian question
Term insurance	Pure protection, usually little or no investment value
Endowment / money-back	Cash value, exempt-policy test, maturity gain
Whole-life / participating policy	Cash value, bonuses, exempt-policy test
ULIP	Insurance plus investment-linked value; policy classification matters
Annuity / pension policy	Annuity-income and life-insurance rules

The contract terms matter more than the marketing name.

Keep the original policy schedule, benefit illustration, premium history, surrender-value table and any investment statement.

Without those documents, a Canadian adviser may not be able to determine what the contract is under Canadian law.

2. Moving to Canada Can Reset the Canadian Cost to Fair Market Value

CRA’s technical interpretation of foreign life-insurance policies confirms an important immigration rule.

When an individual becomes Canadian resident, many properties are deemed disposed of immediately before immigration and reacquired at fair market value.

For a foreign life-insurance policy caught by that rule, the policyholder is generally treated as having last acquired the policy when Canadian residency begins, at a Canadian cost equal to the policy’s fair market value at that time.

That can be highly valuable later.

Suppose a policyholder paid premiums in India for ten years before moving to Canada.

Canada does not necessarily start every future calculation from the original rupee premiums.

The Canadian starting point can instead be the fair market value at immigration, subject to the relevant rules.

That makes an arrival-date valuation essential.

Ask the insurer for:

• cash surrender value;
• fund/account value;
• bonus value;
• policy loan balance;
• benefit structure; and
• any insurer statement that helps establish fair market value.

RegalTicker’s live Invest in India from Canada guide explains why arrival-date valuations matter across the wider portfolio.

3. The Exempt-Policy Test Is the Central Canadian Question

Canadian tax law distinguishes an “exempt policy” from a policy that functions more heavily as an investment or savings vehicle.

The exempt-policy rules are set out in section 306 of the Income Tax Regulations.

The test is actuarial.

CRA’s current 2026 guidance stresses that the analysis applies policy by policy and can require information that only the issuing insurer possesses.

That is why a foreign policy should not be classified from a brochure alone.

A policy issued by a non-resident insurer is not automatically prevented from qualifying as an exempt policy.

But neither is it automatically exempt.

The insurer or a qualified actuary may need to provide enough information to compare the policy with Canada’s exemption-test rules.

This is especially important for endowment policies, whole-life policies, participating policies, money-back policies, and ULIPs or investment-linked insurance products.

4. A Non-Exempt Policy Can Create Annual Canadian Income Before Maturity

Section 12.2 of Canada’s Income Tax Act can require annual income inclusion where a taxpayer holds an interest in a life-insurance policy last acquired after 1989 and the policy is not an exempt policy or another specified exception.

The amount is broadly tied to the policy’s accumulating fund over its adjusted cost basis on the relevant anniversary day.

This is the part many Indian policyholders do not expect.

The policy may not pay cash that year.

India may not tax anything that year.

Canada can still require income to be recognised if the Canadian annual-accrual rules apply.

This does not mean every Indian endowment or ULIP is automatically taxed annually.

It means the exempt-policy question has to be answered first.

If the policy is exempt, the section 12.2 annual-accrual rule generally does not apply in the same way.

If it is not exempt, annual Canadian reporting can become necessary.

5. ULIPs Need More Care Than “Insurance” or “Mutual Fund”

A ULIP combines a death-benefit component with an investment-linked value.

That is exactly why simple labels are dangerous.

CRA’s May 2026 roundtable on foreign insurance products said the classification of an offshore investment-linked insurance product depends on the facts and circumstances of the particular contract, including the insurer’s accounting and valuation methodology.

A foreign product can potentially be a life-insurance policy, a segregated-fund-type arrangement, or another structure requiring separate analysis.

For an Indian ULIP, the correct Canadian process is therefore:

1. obtain the full policy contract;
2. identify the death benefit;
3. identify how unit/fund value is calculated;
4. determine how the insurer values reserves and liabilities;
5. test whether the product is a life-insurance policy under Canadian law;
6. test exempt-policy status if applicable; and
7. only then decide annual income and maturity treatment.

Do not force the ULIP into a foreign-fund label from another tax system.

Canada has its own rules.

6. T1135 Can Apply to the Policy Itself

CRA’s T1135 guidance is unusually direct on this point.

A life-insurance policy issued by a foreign issuer can meet the definition of specified foreign property.

For T1135 purposes, CRA says the policy’s adjusted cost basis can be considered a reasonable approximation of the cost amount.

That means the policy can join Indian bank accounts, shares, mutual funds, rental property and other specified foreign property for the aggregate CAD100,000 threshold.

The policy does not get a separate CAD100,000 threshold.

A taxpayer with Indian mutual funds costing CAD45,000, Indian bank accounts costing CAD35,000, and a foreign insurance policy with an ACB approximating CAD30,000 can cross the T1135 threshold in aggregate.

Your live T1135 for Indian Assets guide covers the full reporting mechanics.

7. Maturity or Surrender Can Create a Fully Taxable Policy Gain in Canada

This is one of the biggest differences from an ordinary investment.

Under section 148, a disposition of an interest in a life-insurance policy can require the policyholder to include a policy gain in income.

In broad terms:

policy gain = proceeds of disposition − adjusted cost basis

Maturity is a disposition.

Surrender can also be a disposition.

The crucial Canadian point is that a life-insurance policy is not capital property for this purpose.

So if a policy gain arises, the full amount is generally included in income rather than only the capital-gain inclusion portion.

8. Prior Annual Income Can Affect Adjusted Cost Basis

Adjusted cost basis is not merely “total premiums paid.”

Canada’s section 148 formula can incorporate the cost of the policy interest, premiums, previous income inclusions, policy loans, distributions and other statutory adjustments.

This matters if annual section 12.2 income has already been reported.

Those previous inclusions can affect ACB and therefore the gain at surrender or maturity.

Do not calculate a Canadian maturity gain from:

maturity proceeds − Indian premium total

without first reconstructing the Canadian policy ACB.

The insurer may need to provide values that are not shown on an ordinary Indian premium receipt.

9. Death Benefits Are a Different Event From Maturity

Death, maturity and surrender should never be placed in the same tax box.

CRA’s foreign-policy guidance confirms that a payment on death under a qualifying exempt life-insurance policy is generally not treated as a disposition in the same way and can be received tax-free under the Canadian life-insurance rules.

That does not mean every foreign insurance payout is automatically tax-free.

The exact contract and exempt-policy status still matter.

But it is enough to show why this statement is unsafe:

“If an LIC maturity is taxable in Canada, the death benefit must also be taxable.”

The two events are different.

Keep the death-benefit wording in the contract separate from maturity and surrender provisions.

10. India’s Maturity Exemption Has Its Own Premium Limits

India applies its own section 10(10D) rules.

Current Income Tax Department guidance distinguishes ULIPs from other life-insurance policies.

ULIPs

For ULIPs issued on or after 1 February 2021, the relevant aggregate premium threshold is generally ₹2.5 lakh per year for the exemption rule.

Where the exemption does not apply, current Indian law can tax the ULIP amount under capital-gains provisions.

Other life-insurance policies

For non-ULIP life-insurance policies issued on or after 1 April 2023, the relevant aggregate premium threshold is generally ₹5 lakh per year.

Where the exemption does not apply, the amount can be taxable in India under the applicable income rules.

Death benefit

The premium-threshold restrictions do not apply in the same way to sums received on death; death benefits remain separately protected under the section 10(10D) framework.

These are Indian rules.

They do not decide the Canadian policy gain or exempt-policy test.

11. India and Canada Can Characterise the Same ULIP Payout Differently

This is another cross-border mismatch worth understanding.

India can treat a non-exempt ULIP redemption under capital-gains provisions.

Canada can still treat a life-insurance-policy disposition under section 148, where the policy gain is generally included fully in income.

So a policyholder should not take the Indian tax label and paste it into the Canadian return.

The correct workflow is:

India calculation → Canadian classification → Canadian policy gain → foreign tax credit analysis

If India paid tax on the same economic amount, qualifying Indian income/profit tax may support a Canadian foreign tax credit, subject to Canadian rules and timing.

But the countries do not need to call the amount by the same name.

12. Existing LIC or Other Indian Policies Can Continue After You Become NRI

LIC’s current NRI guidance says existing policies taken while living in India can continue after the life assured moves abroad and becomes NRI.

LIC asks policyholders to update NRI status and address details and permits premiums to continue through approved channels.

That makes a common Canadian fact pattern entirely realistic:

1. policy started while resident in India;
2. policyholder moves to Canada;
3. Indian policy continues;
4. premiums continue after Canadian residency;
5. policy later matures or is surrendered.

The important Canadian work begins at step 2, not step 5.

The Canadian file should preserve FMV at arrival, post-arrival premiums, annual policy values, prior Canadian income inclusions, exempt-policy analysis and maturity/surrender proceeds.

13. A Practical Insurance File for Canadian Residents

For every Indian policy, keep:

Record	Why it matters
Original policy schedule	Product classification
Benefit illustration	Death/maturity structure
Policy issue date	India and Canada rule timing
Canadian residency date	FMV reset timing
FMV / surrender value at arrival	Canadian starting cost
Annual premium history	ACB and India threshold review
Bonus / cash-value history	Policy valuation
ULIP fund statements	Investment-linked value
Policy anniversary statements	Annual-accrual review
Prior Canadian inclusions	ACB reconstruction
T1135 working	Foreign-property reporting
Surrender/maturity statement	Policy gain
India tax/TDS record	Foreign tax credit
Death-benefit wording	Separate death analysis

Long-lived insurance contracts create the same record problem as long-lived investments: the tax answer years later can depend on documents nobody thought were important at the time.

RegalTicker’s Demerger Cost Basis Calculator is a useful reminder that good tax records are built before the exit event.