Life insurance can help pay final taxes

TECHNICALLY, so-called death taxes don't exist in Canada. But the reality is that when you pass away, the government taxes your estate as if you had sold all your capital property. One effective way to deal with the eventual estate tax liability is through life insurance.
Life insurance proceeds are generally not taxable. The proceeds become available immediately, and can be used to meet your family's short-term cash needs. By naming a beneficiary other than your estate, these benefits won't be subject to probate.

You may want to tailor your life insurance purchase to offset taxes due on specific assets:
Real estate. Even your recreational property will be taxed as if it was sold the day you die, unless you've bequeathed it to your spouse. Life insurance will help cover the cost of the capital gains tax.

Investments. If you have a large stock portfolio, its deemed sale can trigger hefty capital gains. By buying sufficient life insurance to cover the anticipated tax bill, beneficiaries get the full value of your portfolio.

Registered plans. Assets held within a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) may get special treatment when passed to your spouse or a dependent child. But taxes are triggered if you leave those assets to non-dependent children or others. Life insurance can be used to offset those taxes. To help you determine how much insurance you need, don't underestimate the importance of professional advice.