For Canada, Life Insurance Broker

Tax free death benefit

An important advantage of life insurance in Canada is that the death benefit is tax free.  Upon death, there are generally capital gains and income taxes on the estate that are owing to CRA.  If the proceeds of life insurance were taxable, then this would add to the tax burden that already exists, including the possibility of moving to the next tax bracket.  The premiums of life insurance in Canada are generally not tax deductible, expect in special circumstance such as when required by a lender, but the non-deductible premiums are usually dwarfed by the tax free death benefit in amount.

Better than lender mortgage insurance

In Canada, a lender will often offer a type of life insurance called mortgage life insurance.  Similar to regular life insurance, there is a death benefit payable upon death, however, the death benefit amount only covers the amount of loan owing and is paid directly to the lender.  In effect, this type of life insurance is protecting the lender more than it is protecting the insured.  In contrast, the typical term life policy has a level death benefit and is paid directly to the beneficiary named by the insured person.  The beneficiary can then decide on what to do with the proceeds, such as pay off the debt, and use the remainder to pay final expenses.

Non deductible premiums

As mentioned previously, the premiums for life insurance are generally not tax deductible.  There are special circumstances, such as when a lender requires the life insurance, when the premiums are deductible.

Tax advantages for corporation owners

Many corporation owners, in Canada, enjoy a lower tax rate than individuals.  Because you are paying life insurance premiums with after tax dollars, the effect is that it generally will cost a corporation less than if an individual is paying.  Also, a corporation can potentially purchase investments within a Universal Life policy for tax-deferred growth.  If death occurs on a corporate policy, the death benefit proceeds are paid tax-free to the corporation.  The proceeds of this death benefit can then be retrieved from the corporation, mostly tax-free, from the Capital Dividend Account in Canada.

Remember that it is always best to consult an Accountant, who is familiar with life insurance, on tax implications of life insurance.

Types of Canadian Life Insurance: Term Life Insurance and Permanent Life Insurance

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