Key points
- The death benefit is generally a one-time, tax-free payment to your beneficiaries.
- Term cover lasts a set period; permanent cover (whole or universal life) lasts for life and usually builds a cash value.
- It usually suits people with dependants, a mortgage or debts, or a business that relies on them.
- Personal premiums are not deductible, except a limited part when a lender requires the policy as collateral for a loan.
- Try the insurance needs calculator for a general estimate of the amount.
What life insurance is
A life insurance policy is a contract: you pay premiums, and if you die while the policy is in force the insurer pays a sum, the death benefit, to the beneficiaries you named. The Financial Consumer Agency of Canada describes the usual reasons people buy it: to replace income so the family can keep its standard of living, to pay debts and final costs, to provide for children or other dependants, and to leave a gift.
| Feature | Term | Permanent |
|---|---|---|
| How long | A set period, such as 10 or 20 years, or to an age such as 65 | For life, while the policy stays in force |
| Cash value | Usually none | Usually builds a cash value you can borrow against |
| Common uses | Needs that end: a mortgage, children growing up, a loan | Needs that last: tax at death, an inheritance, a gift |
The full comparison, including whole and universal life, joint policies for couples and naming beneficiaries, is in our life insurance guide.
Who it usually suits
- Parents of young children, whose income or unpaid care the family relies on for years.
- Homeowners with a mortgage or people with personal guarantees on loans.
- Couples where one income carries most of the household costs.
- Business owners, where a policy can fund a buy-out or keep the company going; see partner and shareholder life insurance.
- People planning their estate, who want money available for the tax due at death; see estate planning.
Someone with no dependants and no debts may need little or none. How much cover makes sense is a needs question: debts, final costs and taxes, income for a number of years and goals, less savings and existing cover. The insurance needs calculator works through those lines.
Life insurance and tax
| Item | General treatment |
|---|---|
| Death benefit to a beneficiary | Generally a one-time, tax-free payment. Income earned once it is invested is taxable. |
| Premiums for personal or family cover | Not deductible. |
| Policy required as collateral for a loan | A limited part may be deductible (Income Tax Act s. 20(1)(e.2)), capped at the net cost of pure insurance. |
| Group term life paid by an employer | A taxable benefit to the employee, on the T4. |
| Policy owned by a corporation | Its own rules, including the capital dividend account; see tax planning with insurance. |
Ask the agent: what exactly is covered and excluded, when the cover starts and ends, whether the premium can change, and what happens if you stop paying.
Where Finvo fits
We cover the tax side of a life insurance decision: whether a premium is deductible or a taxable benefit, how a corporate-owned policy shows up in your company's books, how much tax your estate may owe at death, and how the premium fits your budget.
Finvo itself does not sell insurance or give insurance advice. Finvo can connect you with a licensed insurance agent from our partner network who can help with insurance advice if you need it. The licensed agent advises on products and coverage; Finvo covers the tax side. Insurance and other specialists are joining Finvo as contractors, so a group of consultants can work on your file together and you don't have to go from place to place.
Whoever you deal with, you can check that an agent is licensed: in British Columbia with the Insurance Council of BC licensee directory, and in Alberta with the Alberta Insurance Council agent lookup.
This page is general information, checked against the sources below on 5 Nov 2026. Every policy and plan has its own terms; it isn't insurance, tax, investment or legal advice for your situation.