📋 Estate Planning
Life insurance is an important tool in estate planning — from covering estate costs to leaving a legacy. Here is what to understand.
How life insurance relates to estate planning
An estate is the total of everything a person owns at death, subject to debts and taxes. Life insurance can play several roles:
- Covering estate taxes and costs — In Canada, deemed disposition at death can trigger capital gains taxes. Life insurance can fund these costs so assets don't need to be sold.
- Equalizing inheritances — When an estate contains illiquid assets (a business, a farm, a property), life insurance can provide cash to equalize what different heirs receive.
- Legacy and charitable giving — A life insurance policy can name a charity as beneficiary, enabling a larger gift than might otherwise be possible.
- Bypassing probate — Life insurance proceeds paid directly to a named beneficiary typically bypass the estate and are not subject to probate.
Term vs. permanent in estate planning
Estate planning often involves permanent life insurance — whole life or universal life — rather than term insurance. Permanent insurance:
- Does not expire (as long as premiums are paid)
- Accumulates a cash value component that grows tax-deferred
- Can be structured to fund estate costs at the time of death, whenever that occurs
Term insurance is generally less suited to estate planning because it may expire before the insured's death.
Questions to discuss with your advisor and lawyer
- What are the estimated estate taxes and costs on my current assets?
- Are there illiquid assets in my estate that need to be preserved?
- Do I have legacy or charitable goals that life insurance could support?
- How does corporate-owned life insurance interact with estate planning?
- Is a testamentary trust appropriate for my estate plan?
Registry resources
Important note
Estate planning involves legal, tax, and financial planning considerations that are specific to your jurisdiction and personal circumstances. Always work with qualified legal, tax, and insurance professionals for estate planning decisions.