If premiums are personally funded, what is the tax implication for the benefits received?

When premiums for accident and sickness insurance are personally funded, the benefits received from the policy are generally tax-free. This tax treatment is a significant advantage of personally funding such insurance coverage. The rationale is that individuals pay for these premiums from their after-tax income, meaning that when they eventually receive benefits as a result of a claimed event, those benefits are not taxed again.

Personal funding contrasts with employer-funded premiums, where the tax implications can differ. In cases where an employer pays the premiums, the benefits could be subject to taxation as they are considered part of the employee’s compensation package. Therefore, the personal funding aspect establishes the tax-free status of the benefits, helping to ensure that individuals receive the full advantage of their insurance protection without further tax liabilities.

In conclusion, when individuals pay for premiums out of their own personal funds, it results in receiving benefits tax-free, making this approach an attractive option for financing accident and sickness insurance.