Kevin Wark, Michael O'Connor, "The Next Phase of Life Insurance Policyholder Taxation is Nigh", Canadian Tax Journal (2016) 64:4, 705 - 50
Effect of net cost of pure insurance on policy ACB (pp. 733-4)
The NCPI of a policy reduces the ACB of policies last acquired after December 1, 1982 [f.n. 114: The total of all annual NCPI charges reduces the ACB of the policyholder's interest in a policy by virtue of element L of the definition of "adjusted cost basis" in subsection 148(9). The rules for calculating the NCPI of an interest in a life insurance policy are set out in regulation 308.]
Generally, the NCPI determined for an insurance policy will increase every year as the life-insured grows older. For "level-pay" insurance policies, [f.n. 116: For example, guaranteed whole life, participating life, and UL LCOI [universal life level cost of insurance] policies.] this creates a pattern in which the ACB of the policy increases in the early years (as a result of premium or deposit payments and lower NCPI deductions) but at later durations the ACB is reduced to nil (as a result of an NCPI charge that exceeds the premium or deposits paid into the policy).