Life Insurance as a Crucial Part of Estate Planning

By January 10, 2023 October 27th, 2023 Advisor, Blog, Consumer, News
An elderly couple talking to their insurance advisor about estate planning

Estate planning isn’t only for the wealthy: everything you own becomes part of your estate when you pass away, including your savings account, your car, and your collection of baseball memorabilia.

Start your estate planning now to ensure that your accumulated wealth goes to the people and organizations you want them to. Using life insurance as part of your plan can shield your assets from taxes and provide your family with the funds to cover your final expenses.


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What is Estate Planning?

Estate planning means determining how your assets will be dispersed after you pass away. Part of that planning is minimizing the taxes that will be owed on your estate so that the wealth you transfer to your beneficiaries doesn’t have financial obligations attached. Financial planning entails a range of tasks, including:

  • Making a will so that your assets go to the people and organizations you choose.
  • Designating an executor for your estate.
  • Naming a guardian for your minor children.
  • Making plans for your memorial service.
  • Protecting your assets from taxes.

What is the role of life insurance in estate planning?

You may think life insurance is only a way to provide your beneficiaries with financial support, but it can play a significant role in estate planning. Let’s look at some of the other advantages of using life insurance for that purpose: 

Parking your savings in a tax-sheltered investment.

If you’ve maxed out your RRSP and your TFSA contribution room, you can add additional savings to life insurance. Although life insurance premiums are not tax-deductible, the death benefit is tax-free, whether it goes to your estate or a beneficiary.

Paying immediate expenses.

When you pass away, your family will need money to cover expenses related to your funeral. Even an inexpensive memorial can run around $15,000, and they will have to maintain your mortgage and loan payments, utility bills, and so on. Because a life insurance payout doesn’t have to be sold or go through probate, it can be in their hands quickly.

Ensuring your business can continue to operate.

If your family wants to continue your business after you pass away, they will need extra money until they get set up. If you own a business with someone else, you may want your business partner to be able to purchase your share of the company. Designating your business partner as the beneficiary on a life insurance policy is an easy way to accomplish that.

Paying your final income tax bill.

Your final tax return is filed after you pass away. Your income for that year will include the fair market value of the assets you owned when you passed away, as though you sold them the day before. Your estate must pay any tax owing. Let’s use a family cottage as an example:

If you bought the secondary home ten years ago for $20,000, which was valued at $220,000 when you passed away, a capital gain of $200,000 would be declared on your final tax return. The secondary home would then transfer to whomever you left it at a value of $220,000. If that person later sold it for more than that, they only pay capital gains tax on the difference between $220,000 and whatever they sold it for.

This arrangement saves your heir from paying an enormous capital gains tax, but the tax will still be charged to the estate. The death benefit from your life insurance can be used to pay this tax bill, meaning that your family will not have to sell the cottage to pay it.

Covering probate fees.

Some of the assets you owned when you passed away may have to go through probate to be distributed to your heirs. If there are probate fees owing, they can be paid from your life insurance payout.

Facilitating charitable donations.

Designating a charity as the beneficiary of a life insurance policy ensures that the charity doesn’t have to pay taxes on the money they receive and doesn’t have to dedicate time or resources to receive this gift.

How are survivorship life insurance policies helpful?

Survivorship life insurance policies are joint policies that cover two people, usually a couple. They are an alternative to separate life insurance policies for each person, and they pay out only after both people pass away.

This type of insurance, also called Joint Last-to-Die Life Insurance, is intended to provide a large payout to cover any fees and taxes owed on an estate when its beneficiaries inherit it.

The alternative is to purchase separate life insurance policies, each naming the other partner as a beneficiary. In this arrangement, the surviving partner receives the life insurance payout when the first one passes away. Because of the tax regulations pertaining to spouses, assets they own jointly will transfer directly to the partner without capital gains tax. When the second partner passes away, the heirs of the estate use the payout from the second partner’s life insurance to pay any taxes or fees owed. Although this strategy can work, the policy must be large enough to cover the taxes and fees on the joint estate, which can be considerable.


Estate planning is involved, but it’s manageable if you approach it with intent. Your life circumstances will change, as will your family’s financial needs; start early to make the entire process easier and get accustomed to thinking about the well-being of your loved ones after you pass away.

Using life insurance as part of your estate planning ensures that your heirs will benefit from the assets you leave behind.

As a leading provider of No-Medical Life Insurance in Canada, Canada Protection Plan is pleased to offer life insurance solutions for your estate planning needs. Our policies are designed for people with pre-existing medical conditions who don’t like needles or invasive medical exams or want to get their coverage started quickly. We offer a range of policies, both term and permanent, to suit all your insurance needs. Call one of our licensed advisors today to discuss how you can get the life insurance portion of your estate planning set up. 

Canada Protection Plan is one of Canada’s leading providers of No Medical and Simplified Issue Life Insurance. Our mission is to provide reliable protection and compassionate service from coast to coast with easy-to-purchase life insurance, critical illness insurance and related products. Our expanding product choices will help you get the coverage and peace of mind you need for a better financial future. Canada Protection Plan products are available through over 25,000 independent insurance advisors across Canada.
Canada Protection Plan Inc. (“CPP”), Foresters, their employees and life insurance representatives, do not provide, on CPP or Foresters behalf, financial, estate, legal or tax advice. The information given here is merely a summary of our understanding of current laws and regulations. Clients and prospective purchasers should consult their financial, estate, tax or legal advisor regarding their situation.

421498 CAN (01/23)

To learn more about Canada Protection Plan and our line of comprehensive No Medical and Simplified Issue life insurance solutions, call Broker Services at 1-877-796-9090 and we will be happy to assist you or put you in contact with Sales support in your region.

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