Do Life Insurance Proceeds Go Through the Estate in Ontario?

If a beneficiary is designated, life insurance money is not part of the insured's estate and cannot be claimed by the insured's creditors from the time of death. In plain words, it sits outside the estate and goes to the person named.

The main exception is when the estate itself is the beneficiary. An insured may designate themselves or their personal representative as the person to whom the money is payable, and then the proceeds are paid into the estate. The creditor protection applies only where a beneficiary is designated, so it is not available where no one is designated or the estate is the beneficiary.

Two other points can matter. While a designation in favour of the insured's spouse, child, grandchild or parent is in effect, the insured's own rights in the insurance money and the contract are exempt from execution or seizure. And for dependant support claims only, life insurance the deceased owned on their own life is treated as part of the net estate even though it passes outside the will. A lawyer can confirm how these rules apply to a particular policy.