Business Succession and Estate Planning

A Will versus Life Insurance: What’s The Difference?

January 26, 2024

A small business owner reviewing their will and insurance policies to update their estate plan.

You spend all your life building assets, a bank balance, and a name for yourself and your loved ones. While you plan on growing these assets in your lifetime, you should also consider planning on distributing your estate after you. Life insurance is the most basic form of estate planning for anyone with a dependent. A will is also a popular form of estate planning for individuals and business owners. Both these estate planning tools have their advantages and disadvantages. They are used to distribute assets to beneficiaries, but they work differently and make up for each other’s deficiencies. 

This article will discuss how life insurance and a will are used differently in estate planning

How Is a Life Insurance Used in Estate Planning?

Life insurance gives the beneficiary a substantial tax-free amount upon the death of the insured. This feature of life insurance has multiple uses in estate planning. 

It can be used as a source of income for your dependents after you. If you have a loan, you can take insurance of an equal sum assured to repay the debt in the event of your death. And if you have a large estate that will attract a significant tax bill upon transfer of assets, you can buy a life insurance that can pay taxes. 

Life insurance is a simple and straightforward way of giving one or more beneficiaries a significant amount upon death without any court proceedings or tax obligations. 

How Is a Will Used in Estate Planning?

A will is another tool to transfer your assets like a house, bank balance, business, or jewelry to one or more beneficiaries upon death or in the event of your incapacity. Writing a will is as easy as listing your wishes on paper on which asset to transfer to whom and signing it with two witnesses. You don’t need a lawyer to write a will if your estate is simple and there are no conflicts in distribution. You can also change your will, as the court will only consider the last dated will. 

The main challenge in the will is naming an executor or power of attorney who will execute your will. The person should be trustworthy and someone who can liquidate your assets and distribute them after repaying all outstanding liabilities. The estate transfer is subject to probate fees and may require court approval to execute the will. 

If you don’t write a will and have no other estate planning in place, your assets will be distributed per the provincial law, which may not be as you like. 

Life Insurance Vs. A Will 

Both life insurance and will work differently in estate planning and have their benefits and shortcomings. 


The scope of life insurance is limited to the tax-free sum assured that beneficiaries can get. If you have a more significant estate comprising real estate, personal property, business, artwork, and financial accounts, you can use life insurance payout to pay the tax bill. 

But to distribute these assets among multiple beneficiaries, you might have to consider other estate planning tools like a will, a family trust or a holding company. A will has a broader scope as you can list specific assets and beneficiaries, add conditions, and name a guardian for your pet or children. You can also transfer your assets to charities, organizations, business partners or employees. 


If your will mentions beneficiaries and the list of assets, which includes your life insurance, the beneficiary mentioned in the insurance will supersede any instructions in the will. So make sure you keep your life insurance beneficiary updated. However, changing beneficiaries in insurance could be challenging as the insurance company might require the beneficiary’s consent before you remove them.

However, this is not the case with a will. You can be very detailed about your beneficiaries and update it anytime. Just ensure the will is duly dated and signed by you and two witnesses. If you have several assets and a complex family situation, you might need the broader scope of a will. 


The payout in life insurance is straightforward. Insurers distribute the tax-free payout to the beneficiary(s) in the proportion specified in the policy document. There is no probate or court intervention. 

Meanwhile, the payout in the will is subject to probate and court intervention as the executor takes the will to the probate court to get the “Grant of Administration” to accumulate the assets.  

Maintaining Privacy

In life insurance, only the insured, the insurance company and the beneficiary know about the amount, maintaining the privacy of the transfer. A will becomes a public record that anyone can view after the person is deceased or incapable of making decisions. 

Here, we discussed only two estate planning options. There are many such options, each having its unique use case and benefit. 

Contact DNTW Toronto LLP to Learn How Life Insurance and Wills are Used Differently in Estate Plans

A professional estate planner combines several tools to help you build a tax-efficient plan that suits your situation. To learn how DNTW Toronto LLP can help you with estate planning, contact us online or by telephone at 416.924.4900.