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Life insurance is an essential estate planning tool.
Paying taxes is inevitable upon death so life insurance can be useful to pay them without requiring the liquidation of assets. Buy a life insurance policy where the proceeds are payable to the estate to cover the taxes on the deemed disposition of your assets. Important fact: any life insurance product paid to a beneficiary is not taxable.
You can also donate your life insurance policy to a charitable organization. As the donor, you are entitled to an annual tax credit in the amount of the premiums paid on any policy whose beneficiary is a charitable organization. The benefit itself carries no tax consequences. If, on the other hand, you elect to donate your policy to a charitable organization so that the benefit is payable upon your death, the amount of the benefit paid to the organization is tax-deductible. The tax credit can be declared on the income tax return of the preceding year, if need be.
See our page on donations and bequests and Donating a life insurance policy on the Desjardins Financial Security website.
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