{"id":8093,"date":"2024-11-05T16:52:00","date_gmt":"2024-11-05T16:52:00","guid":{"rendered":"https:\/\/silver.rbcinsurance.com\/en-ca\/2020\/01\/14\/will-my-loved-ones-pay-tax-on-life-insurance-proceeds\/"},"modified":"2024-11-05T18:56:23","modified_gmt":"2024-11-05T18:56:23","slug":"will-my-loved-ones-pay-tax-on-life-insurance-proceeds","status":"publish","type":"post","link":"https:\/\/silver.rbcinsurance.com\/en-ca\/advice-learning\/life-insurance\/will-my-loved-ones-pay-tax-on-life-insurance-proceeds","title":{"rendered":"Is a Life Insurance Payout Taxable?"},"content":{"rendered":"\n<div class=\"wp-block-rbc-template-selector templateSelector template__article articleSingle\" data-template=\"article\">\n<div class=\"wp-block-group articleSingle__container tabListStickyWrapper is-layout-flow wp-block-group-is-layout-flow\">\n<div class=\"wp-block-group articleSingle__container__hero is-layout-flow wp-block-group-is-layout-flow\">\n<div class=\"wp-block-group articleSingle__container__hero__inner is-layout-flow wp-block-group-is-layout-flow\">\n<span class=\"rbc-yoast-breadcrum-span\"><span><a href=\"https:\/\/silver.rbcinsurance.com\/en-ca\/\">Home<\/a><\/span><\/span>\n\n\n\n<div class=\"wp-block-group articleSingle__featuredImage__group is-layout-flow wp-block-group-is-layout-flow\">\n<div class=\"wp-block-group articleSingle__title__group is-layout-flow wp-block-group-is-layout-flow\"><h1 class=\"wp-block-post-title\">Is a Life Insurance Payout Taxable?<\/h1>\n\n\n<div class=\"wp-block-group articleSingle__date__group is-layout-flow wp-block-group-is-layout-flow\"><div class=\"wp-block-post-date\"><time datetime=\"2024-11-05T16:52:00-05:00\">November 5, 2024<\/time><\/div>\n\n\n<span class=\"wp-block-rbc-html-element articleSingle__readTime\">7 Min Read<\/span>\n<\/div>\n\n\n\n<div class=\"wp-block-group articleSingle__author__group is-layout-flow wp-block-group-is-layout-flow\">\n<img decoding=\"async\" src=\"https:\/\/silver.rbcinsurance.com\/en-ca\/wp-content\/uploads\/sites\/2\/2021\/06\/Avatar.webp?quality=80&w=128&h=128&crop=1\" alt=\"RBC Insurance \">\n\n\n\n<div class=\"wp-block-group articleSingle__author__details is-layout-flow wp-block-group-is-layout-flow\">\n<span class=\"wp-block-rbc-html-element articleSingle__author__name\">RBC Insurance <\/span>\n\n\n\n<span class=\"wp-block-rbc-html-element articleSingle__author__designation\"><\/span>\n<\/div>\n<\/div>\n<\/div>\n\n\n<figure class=\"articleSingle__featuredImage wp-block-post-featured-image\"><img loading=\"lazy\" decoding=\"async\" width=\"930\" height=\"620\" src=\"https:\/\/silver.rbcinsurance.com\/en-ca\/wp-content\/uploads\/sites\/2\/2022\/09\/212028-life-insurance-tax-beneficiary-thumb.jpg?quality=80&amp;w=930\" class=\"attachment-post-thumbnail size-post-thumbnail wp-post-image\" alt=\"A woman wondering if she has to pay tax on life insurance proceeds\" style=\"object-fit:cover;\" srcset=\"https:\/\/silver.rbcinsurance.com\/en-ca\/wp-content\/uploads\/sites\/2\/2022\/09\/212028-life-insurance-tax-beneficiary-thumb.jpg 930w, https:\/\/silver.rbcinsurance.com\/en-ca\/wp-content\/uploads\/sites\/2\/2022\/09\/212028-life-insurance-tax-beneficiary-thumb.jpg?resize=300,200 300w, https:\/\/silver.rbcinsurance.com\/en-ca\/wp-content\/uploads\/sites\/2\/2022\/09\/212028-life-insurance-tax-beneficiary-thumb.jpg?resize=768,512 768w, https:\/\/silver.rbcinsurance.com\/en-ca\/wp-content\/uploads\/sites\/2\/2022\/09\/212028-life-insurance-tax-beneficiary-thumb.jpg?resize=412,275 412w\" sizes=\"auto, (max-width: 930px) 100vw, 930px\" \/><\/figure><\/div>\n<\/div>\n<\/div>\n\n\n\n<div class=\"wp-block-group articleSingle__container__main is-layout-flow wp-block-group-is-layout-flow\">\n<div class=\"wp-block-group articleSingle__container__page__nav is-layout-flow wp-block-group-is-layout-flow\">\t\t<div class=\"socials-block\">\n\t\t\t\t\t\t<p class=\"socials-block-title\">\n\t\t\tShare this article\t\t<\/p>\n\t\t<div class=\"social-links mob-mar-b-hlf mob-mar-t-hlf\">\n\t\t\t\t\t<a class=\"social-button-wrapper sharing-custom sharing-email\" href=\"mailto:?subject=Is a Life Insurance Payout Taxable? &#038;body=Hi, I thought you might be interested in this article from RBC Insurance: https:\/\/silver.rbcinsurance.com\/en-ca\/advice-learning\/life-insurance\/will-my-loved-ones-pay-tax-on-life-insurance-proceeds\">\n\t\t\t\t<img decoding=\"async\" src=\"https:\/\/silver.rbcinsurance.com\/en-ca\/wp-content\/plugins\/rbc-blocks\/assets\/img\/icons\/icon-email.svg\"\n\t\t\t\talt=\"envelope icon\">\n\t\t\t\t<span>\n\t\t\t\tEmail\t\t\t\t<\/span>\n\t\t\t<\/a>\n\t\t<div class=\"social-button-wrapper sharing-copy-wrapper\">\n\t\t\t<button class=\"sharing-custom sharing-copy\" data-url=\"https:\/\/silver.rbcinsurance.com\/en-ca\/advice-learning\/life-insurance\/will-my-loved-ones-pay-tax-on-life-insurance-proceeds\">\n\t\t\t<img\n\t\t\t\tsrc=\"https:\/\/silver.rbcinsurance.com\/en-ca\/wp-content\/plugins\/rbc-blocks\/assets\/img\/icons\/icon-related.svg\"\n\t\t\t\talt=\"copy icon\">\n\t\t\t<span id=\"sharing-copyUrl-Label\">\n\t\t\t\tCopy URL\t\t\t<\/span>\n\t\t\t<\/button>\n\t\t\t<input type=\"text\" class=\"sharing-copy-text\" aria-labelledby=\"sharing-copyUrl-Label\">\n\t\t<\/div>\n\t<\/div>\n  \t\t<\/div>\t\n\t\t\n\n\n<div class=\"wp-block-rbc-tabs-list tabsList\" data-switch=\"lgBp\" data-target-heading=\"h2\"><p class=\"tabsList__heading\">On this page<\/p><div class=\"tabsList__wrapper\"><button class=\"selectDropdown__button\" aria-haspopup=\"listbox\" aria-expanded=\"false\"><span class=\"selectDropdown__title\">Key Takeaways<\/span><span class=\"selectDropdown__chevron\"><\/span><\/button><ul class=\"tabsList__items selectDropdown__list\"><li class=\"selectDropdown__list__item tabsList__item selected\"><a href=\"#h-key-takeaways\">Key Takeaways<\/a><\/li><li class=\"selectDropdown__list__item tabsList__item \"><a href=\"#h-what-is-a-life-insurance-beneficiary\">What is a life insurance beneficiary?<\/a><\/li><li class=\"selectDropdown__list__item tabsList__item \"><a href=\"#h-is-life-insurance-taxable-in-canada\">Is life insurance taxable in Canada?<\/a><\/li><li class=\"selectDropdown__list__item tabsList__item \"><a href=\"#h-when-a-life-insurance-taxable-event-can-occur\">When a life insurance taxable event can occur<\/a><\/li><li class=\"selectDropdown__list__item tabsList__item \"><a href=\"#h-tax-reporting-rules-for-life-insurance-payouts\">Tax reporting rules for life insurance payouts<\/a><\/li><li class=\"selectDropdown__list__item tabsList__item \"><a href=\"#h-how-to-make-life-insurance-easy-for-your-beneficiaries\">How to make life insurance easy for your beneficiaries<\/a><\/li><li class=\"selectDropdown__list__item tabsList__item \"><a href=\"#h-additional-faqs\">Additional FAQs<\/a><\/li><\/ul><\/div><\/div>\n<\/div>\n\n\n\n<div class=\"wp-block-group articleSingle__content__main tabListHeadings is-layout-flow wp-block-group-is-layout-flow\">\n<section class=\"wp-block-rbc-section-block  pos-rel\" style=\"border-radius:0px\">\n<div class=\"wp-block-rbc-section-inner-block  section-inner \" style=\"border-radius:0x\">\n<p>In the event that something happens to you, a solid <a href=\"https:\/\/silver.rbcinsurance.com\/en-ca\/life-insurance\/?dlref=Discover-Learn-Insurance&amp;dlarticle=Is-A-Life-Insurance-Payout-Taxable&amp;dltarget=product-info\">life insurance<\/a> policy can give your loved ones some financial security by providing a death benefit that\u2019s paid to your beneficiary or estate. The payout amount can be used to cover funeral expenses, pay off debt you leave behind, supplement income, or help provide for other needs. In most cases, the death benefit is tax free; however, occasionally, taxes are owed. Here\u2019s what you need to know about life insurance payouts and taxation in Canada.<\/p>\n<h2 id=\"h-key-takeaways\">Key Takeaways<\/h2>\n<ul>\n<li>A life insurance beneficiary is the person or entity who will receive your death benefit if you pass away. You can name multiple beneficiaries.<\/li>\n<li>Your beneficiaries will each receive a portion of your death benefit as a tax-free lump sum.<\/li>\n<li>If you don\u2019t name a beneficiary, your estate will automatically become the beneficiary in the event of your death and the death benefit will be subject to estate<\/li>\n<li>There are other instances where a life insurance policy may be taxable in Canada, such as when you withdraw from the cash value of a permanent policy or you sell or cancel a permanent policy.<\/li>\n<li>If you or your beneficiaries owe tax on life insurance policy payouts, the insurance company will send out a T5 slip.<\/li>\n<\/ul>\n<h2 id=\"h-what-is-a-life-insurance-beneficiary\">What is a life insurance beneficiary?<\/h2>\n<p>A <a href=\"https:\/\/silver.rbcinsurance.com\/en-ca\/advice-learning\/life-insurance\/what-is-a-life-insurance-beneficiary\/\">life insurance beneficiary<\/a> is the person, people, or entity that will \u201cbenefit\u201d from your life insurance payout, called a \u201cdeath benefit,\u201d if you pass away. Ideally, you\u2019ll appoint a beneficiary on your policy to simplify the settlement process after your death and eliminate extra fees and potential taxes. Your beneficiary can be a spouse, child, other family member, friend, or even a charitable organization, trust, or business. You can list multiple beneficiaries.<\/p>\n<p>If you pass away and you haven\u2019t assigned one or more beneficiaries, your estate will automatically become the beneficiary of your life insurance policy and the amount will be distributed according to the terms in your will. The death benefit will then be subject to estate taxes. Creditors can also claim it to pay off any of your outstanding debts.<\/p>\n<h2 id=\"h-is-life-insurance-taxable-in-canada\">Is life insurance taxable in Canada?<\/h2>\n<p>You may be worried that any loved ones you\u2019ve listed as beneficiaries will be forced to report and pay taxes on the death benefit from your life insurance. Luckily, that\u2019s not the case. Most financial gifts and inheritances, including those from a life insurance policy, are not considered taxable income in Canada. Read on for instances where this isn\u2019t the case.<\/p>\n<h2 id=\"h-when-a-life-insurance-taxable-event-can-occur\">When a life insurance taxable event can occur<\/h2>\n<p>Certain types of permanent life insurance have a cash value that accumulates from a portion of the premiums you pay. This cash value will grow based on a set formula or may be invested so it can earn interest. Taxes are deferred on this growth while the policy is in effect unless it exceeds government limits. If you withdraw from the cash value or cancel your policy (known as \u201csurrender\u201d) in exchange for the cash value, you may be subject to taxes or fees (known as a \u201csurrender charge\u201d).<\/p>\n<p>If you pass away and your beneficiaries receive a payout, the interest earned on your policy will likely be taxed as income.<\/p>\n<p>If your estate is the beneficiary of your death benefit, either by default or because that\u2019s how you chose to set up your life insurance, it will owe estate taxes on the amount. The estate itself is responsible for paying those taxes to the government, not the individual person or people listed in the will.<\/p>\n<p>Here\u2019s a summary of when a life insurance policy payout is taxable in Canada:<\/p>\n<ol>\n<li><strong>You do not name a beneficiary in your life insurance policy: <\/strong>In this case, your estate will become the default beneficiary and will owe estate taxes to the government on the amount of the death benefit.<\/li>\n<li><strong>You withdraw from the cash value of a permanent life insurance policy: <\/strong>The cash value of your policy is tax deferrable within certain limits while it remains in your policy. If you withdraw a portion of the cash value, you will likely owe some tax.<\/li>\n<li><strong>You cancel your permanent policy: <\/strong>If you cash out (a.k.a. surrender) a life insurance policy that was supposed to last for your entire life, some of that money may be taxable.<\/li>\n<li><strong>Your beneficiaries get interest earnings from your policy:<\/strong> In addition to the death benefit, your beneficiaries may receive interest from the cash value of your policy. If they do, it will likely be taxed as income.<\/li>\n<li><strong>You sell your permanent life insurance policy while you\u2019re still alive:<\/strong> If your insurance provider allows policy holders to sell their policies and you live in a province, like Quebec or Saskatchewan, where it\u2019s legal, the amount you receive in payment may be taxed as income.<\/li>\n<\/ol>\n<h2 id=\"h-tax-reporting-rules-for-life-insurance-payouts\">Tax reporting rules for life insurance payouts<\/h2>\n<p>In most cases, beneficiaries who receive a life insurance payout don\u2019t need to report it to the Canada Revenue Agency because it doesn\u2019t count as taxable income.<\/p>\n<p>However, if the policy has earned interest or dividends that do owe tax, the insurance company will send beneficiaries a <a href=\"https:\/\/www.canada.ca\/en\/revenue-agency\/services\/tax\/businesses\/topics\/completing-slips-summaries\/financial-slips-summaries\/return-investment-income-t5\/t5-slip.html\">T5 slip<\/a> that lists the investment income they need to report to the government. Those earnings must be reported on line 12100 of that year\u2019s tax return.<\/p>\n<p>If you surrender your own policy for its cash value, you may need to report it on line 12100 of your own income tax filing. Your insurance company will send you a T5 slip if that\u2019s the case.<\/p>\n<h2 id=\"h-how-to-make-life-insurance-easy-for-your-beneficiaries\">How to make life insurance easy for your beneficiaries<\/h2>\n<p>With a little planning, you can make things simpler for your beneficiaries. Here\u2019s what you need to do:<\/p>\n<ol>\n<li>Name your beneficiaries in your policy so the death benefit doesn\u2019t get directed to your estate. It could also speed up the settlement process if you pass away.<\/li>\n<li><a href=\"https:\/\/silver.rbcinsurance.com\/en-ca\/advice-learning\/life-insurance\/how-to-talk-about-life-insurance-with-your-family\/\">Keep your beneficiaries in the loop<\/a>. They should know that they\u2019ve been named.<\/li>\n<li>Keep a written record of your policy and track any updates.<\/li>\n<li>Name your secondary or contingent beneficiaries, too, in case any of your primary beneficiaries pass away before you. That way, the death benefit will remain tax free.<\/li>\n<li>If you experience any major life changes, including marriage or divorce, the birth of a child, the loss of a loved one, retirement, change of health, the purchase of a new home, or the launch of a business, consider updating your life insurance policy.<\/li>\n<\/ol>\n<h2 id=\"h-additional-faqs\">Additional FAQs<\/h2>\n<h3>Is the cash surrender value of life insurance taxable in Canada?<\/h3>\n<p>It may be. If you cancel your life insurance policy, any cash value amount you receive that exceeds the total premiums you paid is considered a taxable gain. It will be subject to your marginal tax rate on your income tax report.<\/p>\n<h3>Is the Canada Pension Plan death benefit taxable in Canada?<\/h3>\n<p>Yes. The one-time payout, which is available to the estate or beneficiary of qualifying CPP contributors, is considered taxable income.<\/p>\n<h3>Is life insurance tax deductible in Canada?<\/h3>\n<p>In most cases, life insurance premiums are not tax deductible. There are a few exceptions, like if you\u2019re a business owner and pay premiums for your employees. No matter what your situation, make sure you chat with your RBC Insurance advisor to get clarification.<\/p>\n<p><em>In short, life insurance shouldn\u2019t be a complicated part of your financial plan. Speak with an<\/em><em>\u00a0<\/em><a href=\"https:\/\/services.rbcinsurance.com\/StoreAdvisorLocator\/?dlref=Discover-Learn-Insurance&amp;dlarticle=Is-A-Life-Insurance-Payout-Taxable&amp;dltarget=advisor-locator\"><em>RBC life insurance advisor<\/em><\/a><em> or call us at\u00a01-866-223-7113 if you\u2019re in doubt about how much coverage you need or whether any portion of your policy may be taxable.<\/em><\/p>\n\n\n\n<div class=\"wp-block-rbc-section-inner-block  section-inner block-wpr bg-light-blue rounded-corners pos-rel pad-l pad-r mob-pad-r centered-block mob-pad-l pad-t mob-pad-t pad-b mob-pad-b\" style=\"border-radius:0x\">\n<h2 class=\"wp-block-heading has-text-align-center mar-t mar-b-hlf mob-mar-b-hlf mob-mar-t\" id=\"h-rbc-life-insurance\">RBC Life Insurance<\/h2>\n\n\n\n<p class=\"has-text-align-center mar-b-hlf mob-mar-b-hlf pad-r mob-pad-r pad-l mob-pad-l has-text-reg-font-size\">Protect Your Loved Ones With Dependable Life Insurance.<\/p>\n\n\n\n<div class=\"wp-block-buttons is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-a89b3969 wp-block-buttons-is-layout-flex\"><div>\n<div class=\"wp-block-button aligncenter btn is-style-primary primary\"><a class=\"wp-block-button__link has-text-lg-font-size has-custom-font-size wp-element-button\" href=\"https:\/\/silver.rbcinsurance.com\/life-insurance\/life-insurance-quote\/index.html\" rel=\"noreferrer noopener\" data-dig-id=\"LP-283-476a44f4\" data-dig-category=\"LP\" data-dig-action=\"button click\" data-dig-label=\"Get a quote-https:\/\/silver.rbcinsurance.com\/life-insurance\/life-insurance-quote\/index.html \">Get a quote<\/a><\/div>\n<\/div><\/div>\n\n\n\n<p class=\"has-text-align-center mar-t-hlf mob-mar-t-hlf pad-b mob-pad-b has-text-reg-font-size\"><a href=\"https:\/\/silver.rbcinsurance.com\/en-ca\/life-insurance\/\" data-dig-id=\"LP-273-18de2c2e\" data-dig-category=\"LP\" data-dig-action=\"link click\" data-dig-label=\"Learn More\" class=\"rbc-link-format\">Learn More<\/a><\/p>\n<\/div>\n\n\n\t<style type=\"text\/css\">\n\t\t.wp-block-tk-spacer.id-995b0d6b-db1f-4a19-8b29-b3439b91d3d9 {\n\t\theight: 30px;\n\t}\n\n\t@media ( max-width: 480px ) {\n\t\t.wp-block-tk-spacer.id-995b0d6b-db1f-4a19-8b29-b3439b91d3d9 {\n\t\t\theight: 15px;\n\t\t}\n\t}\t<\/style>\n\t<div class=\"wp-block-tk-spacer id-995b0d6b-db1f-4a19-8b29-b3439b91d3d9\" aria-hidden=\"true\"><\/div>\n\t\n\n\n<div class=\"wp-block-rbc-rbc-default-collapsible\"><p><button class=\"collapse-toggle collapsed\" data-target=\"#collapse2de7ba0a\" data-toggle=\"collapse\" aria-expanded=\"false\" aria-controls=\"collapse2de7ba0a\" data-dig-id=\"LP-HomeInsurance-14506-2de7ba0a\" data-dig-category=\"LP-HomeInsurance\" data-dig-action=\"accordion closed\" action-closed=\"accordion closed\" action-opened=\"accordion open\" data-dig-label=\"Things Our Lawyers Want You to Know\"><div>Things Our Lawyers Want You to Know<\/div><\/button><\/p><div class=\"collapse-content collapse\" id=\"collapse2de7ba0a\">\n<div class=\"wp-block-rbc-collapsible-inner-block collapse-inner\">\n<p class=\"has-text-sm-font-size\">*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.<\/p>\n\n\n\n<p class=\"has-text-sm-font-size\">This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.<\/p>\n<\/div>\n<\/div><\/div>\n\n\n\n<div style=\"height:31px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n\n<\/div>\n<\/section>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Get to know your life insurance options and how your choices can impact your beneficiaries when it comes to taxes in Canada. <\/p>\n","protected":false},"author":116,"featured_media":8106,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"templates\/new-rbci-design.php","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[54],"tags":[3,21],"article-type":[80],"ppma_author":[],"class_list":["post-8093","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-life-insurance","tag-family","tag-managing-money","article-type-advice-learning"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.3 (Yoast SEO v27.3) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Is A Life Insurance Payout Taxable? | RBC Insurance<\/title>\n<meta name=\"description\" content=\"Get to know your life insurance options and how your choices can impact your beneficiaries when it comes to taxes in Canada.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, 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