Individual CI policy: premiums are not deductible. The lump-sum benefit received is not taxable, regardless of how the insured uses it. This is one of the most straightforward tax rules in A&S insurance.
Corporate-owned CI: a corporation can own a CI policy on a key person or shareholder. Premiums are not deductible as a business expense. When the corporation receives the CI benefit, the benefit is generally non-taxable to the corporation, and proceeds may be distributable through the capital dividend account (CDA) under certain conditions, allowing tax-free distribution to shareholders. This is an advanced planning area; the LLQP exam tests the basic principle only (non-taxable individual benefit; non-deductible premium).