Life insurance in its simplest form is a contract between an insurance policyholder and an insurer where the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of the insured.
There are many different types of life insurance but can be boiled down to Term Life Insurance and Permanent Life Insurance.
In Canada, the proceeds from a life insurance policy are not taxable in the hands of the beneficiary.
The premiums paid cannot be deducted or used as an expense for tax purposes except in some unique circumstances involving businesses.
A life insurance contract usually involves the following:
- Life insured – The individual whose life is insured by the insurance company.
- Policy owner – The individual who owns the contract, usually the life insured but can be someone else.
- Beneficiary(s) – The individual(s) who are designated to receive the proceeds of the life insurance in the event of the life insured’s death.
Life Insurance is meant to provide security for your loved ones in the event of your death. It will not replace you but will help with stressful financial matters in a time of grieving.