Is life insurance taxable in Canada?

With files from Jessica Ho

This article was originally published on November 21, 2023, and was updated on February 6, 2026.

Purchasing life insurance can reduce the financial burden on your loved ones and help build and transfer wealth, but are there any tax implications you should know about?

As you get ready to file your tax return for the 2026 season, you may be wondering if life insurance proceeds are taxable in Canada. The short answer is usually no. The long answer, however, is more complex.

Do beneficiaries pay tax on life insurance in Canada?

Your life insurance beneficiaries typically won’t need to pay income tax on a death benefit from your policy. Like financial gifts and inheritances, most life insurance death benefits are non-taxable under the CRA. This means you can use the money as income replacement or to pay off your mortgage without reporting it as additional income on your 2026 tax return. However, it’s important to note that any income earned on life insurance (such as investment income) is subject to tax. 

What is a life insurance beneficiary? 

A beneficiary is a person or entity who receives a death benefit from your life insurance policy when you pass away. You can name one or multiple beneficiaries on your policy, including your spouse, child, friend or organization. Naming a person (or people) rather than your estate will help avoid potential taxes, additional costs, and delays in receiving the payout.

Also read: How to use life insurance for tax and estate planning

What are the tax implications of naming your estate as your beneficiary?

In some cases, there could be tax implications if your death benefit goes towards your estate instead of directly to a person. This can happen if you list your estate as your beneficiary or if all your named beneficiaries die before you do. 

If this happens, the amount may be subject to tax, and there may be additional settlement costs (e.g., accounting, legal, executor's fees) during the distribution of the death benefit. To avoid added fees and taxes and to speed up the settlement process, it’s a good idea to name beneficiaries directly on your life insurance policy. 

Is the cash value of life insurance taxable in Canada?

Some permanent life insurance policies have a built-in cash value component that grows tax-deferred over time. If you decide to surrender your policy and withdraw the cash value, you will pay tax on your earnings. In addition, when you die, if your beneficiaries receive interest or dividends earned on the cash value, they will pay tax on those amounts. 

If you need to file taxes, your insurer will send you a T5 slip outlining the amount you owe to the government. You can then simply report the earnings on line 12100 of your tax return. 

However, you don’t need to report your cash value earnings as income while they remain in the policy as long as your earnings stay within the limit (consult your insurer for an exact amount, as it can differ depending on your policy and legislation). Life insurance investments grow under a tax-sheltered basis, and nearly all policies in Canada are exempt from taxation until the money is withdrawn. 

The table below outlines real-life scenarios in which life insurance may or may not be taxable. 

Are life insurance premiums tax deductible in Canada?

Speaking from an individual standpoint (not for businesses), life insurance premiums are usually not tax deductible in Canada. But there are a few scenarios in which part of your payment may be tax-deductible. For example, if you use your life insurance policy as collateral for a loan, or you borrow against your cash value. If you use the loan to earn business or property income, you could possibly get a deduction on your taxes – be sure to consult a tax professional.

If your policy is donated to a charity, you won’t receive a tax deduction, but you can receive a tax credit instead. Unlike a deduction, which decreases your taxable income, a credit decreases the amount you owe to the government directly. 

Keep in mind that naming the charity organization as your beneficiary isn’t the same as donating the policy. If you simply name them, you won’t personally receive a tax credit, but your estate will receive one for the donation after your passing. 

The table below outlines scenarios where life insurance premiums may or may not be taxable. 

The bottom line

In most cases, life insurance is not taxable in Canada. This includes the death benefit once it’s paid and the premiums to keep the policy active. However, there are a few scenarios where you may be taxed, for example, if you surrender the cash value of a permanent policy or leave your benefit to your estate. For more information about your personal 2026 tax return, be sure to consult a tax professional. 

For information about insurance and taxes, visit our insurance tax guide. 

Also Read

• Can you sell your life insurance policy?
• How much life insurance do I need?
• Life insurance trusts, explained
• How to use life insurance for tax and estate planning
• You may no longer have enough life insurance thanks to the capital gains tax hike