Life Insurance Beneficiary vs Will : A Comprehensive Guide for Canadians

Get clarity on life insurance beneficiary vs Will in Canada. Understand how they work together for comprehensive estate planning.

Estate planning is crucial for all Canadians to ensure their wishes are properly fulfilled when they pass away. Two of the most important estate planning tools are naming a life insurance beneficiary and creating a will. While they may seem interchangeable, there are key differences between life insurance beneficiary vs will you need to understand.

This guide will provide clarity on life insurance beneficicary vs will. We’ll cover how each one works, the pros and cons, how they interact, and tips to align your will and beneficiaries. With this knowledge, you can make informed decisions when structuring your estate plan.

How Life Insurance Beneficiaries Work

A life insurance beneficiary is the individual or entity you designate to receive the payout from your life insurance policy upon your death. This provides them with a lump sum payment that can help replace their income, pay expenses, and save for the future.

You can name multiple beneficiaries on your life insurance policy and indicate the percentage of the death benefit each will receive. Your beneficiaries can include family members, friends, organizations, or trusts. It’s crucial to inform your beneficiaries of their status so they can file a claim when the time comes.

A key benefit of life insurance beneficiaries is avoiding the probate process. The death benefit payout goes directly to beneficiaries and does not pass through probate court. This streamlines distribution and gets them the money faster.

You can change your beneficiaries at any time by contacting your life insurance company. Keeping them updated ensures the payout will go where you intend.

How Wills Work in Estate Planning

A will is a legally binding document that states how you want your possessions distributed when you die. It covers assets like real estate, bank accounts, investments, personal property, and more.

Your will allows you to name specific beneficiaries to receive certain assets or percentages of your estate. You can designate family, friends, charities, or other entities as beneficiaries in your will.

Unlike life insurance payouts, assets distributed through a will must go through probate court first. This involves confirming the will’s validity, paying any outstanding taxes/debts, and authorizing the executor to distribute the estate.

Your will also allows you to name an executor to manage the probate process and ensure your wishes are fulfilled. You can change your will anytime by creating a new one or amending it with a codicil.

Key Differences Between Life Insurance Beneficiary vs Will

Key Differences Between Life Insurance Beneficiary vs Will
Key Differences Between Life Insurance Beneficiary vs Will

There are important differences between life insurance beneficiary vs will to understand:

  • Probate: Life insurance payouts avoid probate, while will assets must go through it. This can mean faster distribution for beneficiaries.
  • Scope: A will handles your entire estate, while beneficiaries only get the life insurance payout.
  • Control: Your will depends on an executor, but beneficiaries can directly file a claim.
  • Legal Interaction: Beneficiary designations supersede will provisions for life insurance proceeds.
  • Changing Instructions: It’s easier to change beneficiaries than amend a will.
  • Privacy: Wills become public records, but beneficiaries remain private.

Do You Need Both a Will and Beneficiaries?

Most financial experts recommend having both a will and life insurance beneficiaries as part of a comprehensive estate plan. Here are key reasons to have each:

Benefits of Life Insurance Beneficiaries

  • Replace lost income for dependents
  • Avoid probate for quicker access to funds
  • Flexible payout options for beneficiaries
  • Privacy in the distribution of death benefit

Benefits of Having a Will

  • Control broad distribution of the entire estate
  • Name guardians for minor children
  • Appoint executor to manage affairs
  • Outline wishes for property, assets, and heirlooms
  • Charitable gifts take effect at death

Ultimately, life insurance provides income replacement, while a will handles asset distribution. Using both strategically allows you to fully care for your beneficiaries.

Tips for Aligning Your Will and Beneficiaries

Since life insurance beneficiaries supersede will provisions, it’s vital to align your policy and will to prevent conflicts. Here are tips to ensure your estate plan reflects your wishes:

  • Name dependents or spouses as life insurance beneficiaries.
  • Discuss your estate plan openly with family to set expectations.
  • Review beneficiary designations when life circumstances change.
  • Update your will after changing beneficiaries.
  • Inform beneficiaries of their status and policy details.
  • Work with an estate planning lawyer for your will.
  • Consult your life insurance agent for beneficiary guidance.

Tax Implications of Life Insurance Beneficiary vs Will in Canada

There are some important tax considerations when naming life insurance beneficiaries compared to distributing assets through your will in Canada:

Tax Implications of Life Insurance Beneficiaries

  • Life insurance death benefits are generally tax-free for named beneficiaries
  • Exceptions if the policy is owned by a corporation or charity
  • Proceeds may still be used to pay the deceased’s tax debts
  • Large payouts may impact the beneficiary’s tax bracket that year
  • Beneficiaries can transfer proceeds tax-free to their spouse

Tax Implications of Assets Distributed Through a Will

  • Estate assets may face capital gains taxes when transferred
  • RRSPs, RRIFs, and TFSAs have tax implications for beneficiaries
  • Taxable income realized by the estate before distribution
  • Charitable gifts through will provide donation tax credits
  • Beneficiaries may have to pay income tax on received gifts
  • Exceptions for transfers to spouses and qualifying trusts

Consulting a tax expert or estate planning lawyer can help you develop a strategy to minimize taxes and maximize the amount transferred.

Using Trusts for Estate Planning in Canada

In some cases, high-net-worth Canadians may consider using trusts in their estate planning along with wills and life insurance beneficiaries. Some key things to know about trusts in Canada:

  • Must be set up while alive as part of your estate plan
  • A trust holds assets for beneficiaries you name
  • Can help minimize taxes compared to direct transfers
  • Keep assets distribution private compared to wills
  • Require a trustee to manage the trust
  • Complex to set up and maintain
  • Consult a legal professional when considering

Trusts can provide more control over asset distribution compared to directly naming beneficiaries in a will. But they require more planning, legal support, and maintenance. For most Canadians, a clearly written will and aligned life insurance beneficiaries are sufficient estate planning.


Understanding the difference between life insurance beneficiary vs will is crucial for estate planning. While there is some overlap, these tools have distinct purposes.

Life insurance provides income replacement that bypasses probate. Wills outline asset distribution and require probate. Most experts recommend using both to fully protect your beneficiaries.

Be sure to align your beneficiaries and will instructions to prevent conflicts. Keep both documents up-to-date as your circumstances evolve. With strategic planning, you can leverage wills and life insurance to leave a lasting legacy for those you care about.

Protect your loved ones with life insurance and leave a lasting legacy. Get expert guidance on designating life insurance beneficiaries as part of your estate plan. Speak with one of our licensed advisors at IDC Insurance Direct Canada today. We can discuss your options for tailored term life insurance, whole life insurance, and universal life insurance to provide for your family. Call 1-888-767-6576 or request a callback now to start planning your life insurance estate strategy.


Who should be my life insurance beneficiary?

You should name beneficiaries who depend on your income, such as a spouse, children, or partners. You can also name trusts, charities, etc.

What assets are not included in a will?

Joint bank accounts, retirement accounts with designated beneficiaries, and life insurance payouts go directly to the named beneficiaries, not through the will.

Can I name minors as beneficiaries?

You can, but the funds will be held until they reach the age of majority. Consider a trust for managing assets for minors.

Do life insurance payouts go through probate?

No, the death benefit goes directly to the named beneficiary, bypassing the probate process.

Do all assets in a will go through probate?

Yes, any assets distributed via the will must go through probate court validation processes before being released to beneficiaries.

What happens if a beneficiary dies before me?

Review your documents regularly and name contingent beneficiaries in case a primary beneficiary predeceases you.

  1. Life insurance and wills –
  2. Life Insurance and Wills: What You Need to Know –
  3. Life Insurance Beneficiary vs. Will: Do I Need Both? –
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