Personal Ownership of Life Insurance

There are many reasons to choose personal ownership of life insurance. These include; income replacement, creditor protection, and the avoidance of probate.

Income Replacement

Life insurance has been used for centuries as a way to protect a family in the event of the death of the person who is earning income for the family. The life insurance death benefit can be either invested to earn interest and dividends, or it can be used to purchase an annuity. Either option will provide the means to replace all or a portion of the lost income. 

Creditor Protection

One benefit associated with personally-owned life insurance is the opportunity for creditor protection. Creditor protection means that creditors cannot seize the cash value in the life insurance policy. The objective may be to protect the life insurance proceeds from creditors during the life of the life insured, or to protect the proceeds after the death of the life insured.

Avoidance of Probate Fees

Probate fees are charged by the provinces on all assets in the estate (in Ontario the probate fee is 1.5%). A personally-held policy with a designated beneficiary (for example your spouse) avoids probate fees. If the estate of the insured person is the beneficiary of the policy, then those proceeds may be subject to probate fees.