Due to the progressive nature of the Canadian income tax system, more than half of these funds could go to the government. Protecting your estate The capital gains tax was introduced more than two decades ago and can take a big bite out of your estate. A substantial portion of it could therefore go to the governments coffers when a large lump sum is included in income in the year of death. Creating a final expense fund Not everyone will have a major tax liability at death, but every estate will incur some final expenses. These may include funeral expenses, probate fees, income taxes, credit card debts, etc.
Life insurance is probably the most reasonable, fair and accessible option.
It is also important to note that, under current legislation, the death benefit of a life insurance policy is tax free. This means your beneficiaries or estate will receive the entire amount for which you are covered.