Can you convert life insurance to an annuity in Canada?

Sometimes. You generally can’t “swap” a term life policy into an annuity because term has no cash value. But permanent life insurance (whole or universal) may build cash value that can be accessed and then used to purchase an annuity. Some strategies use withdrawals, surrender values, or policy loans to generate funds for retirement income.

Is it better to take a policy loan or surrender the policy to buy an annuity?

It depends. A policy loan may let you keep coverage in force while accessing cash, but interest accrues and can reduce the net death benefit. Surrendering ends coverage but may provide more cash upfront. Both can have tax consequences depending on the policy’s adjusted cost base and gains.

Is converting life insurance to an annuity taxable in Canada?

Tax depends on how you access cash value. Withdrawing or surrendering a policy can create taxable income. A policy loan is generally not taxable when taken, but surrendering or lapsing with an outstanding loan can trigger tax. Consult a tax professional for your specific policy details.

Life Insurance to Annuity: How to Annuitize Cash Value in Canada (2026)

The phrase “life insurance to annuity” usually means one thing in practice: you have cash value inside a permanent policy (whole life or universal life), and you want to turn that value into predictable retirement income (often by buying an annuity). This guide explains how the strategy works, when it makes sense, and what to compare before you act.

Updated March 17, 2026

First: term life can’t be “annuitized”

Term life is pure protection and has no cash value. There’s nothing to annuitize. The life-insurance-to-annuity idea only applies to permanent coverage that builds cash value over time.

Step 1: Identify where the cash value sits

Cash value can exist in whole life (often more stable) or universal life (more investment choice). If you want the basics of cash value, read life insurance like a savings account.

Step 2: Choose how you access value

The three common paths are:

Withdrawal: take funds out (may reduce coverage; can be taxable).
Surrender: end the policy and take the surrender value (coverage ends; can be taxable). See surrender life insurance policy Canada.
Policy loan: borrow against cash value (interest accrues; may reduce net death benefit). See life insurance policy loan Canada.

If your question is “can you cash it out?”, start at can you cash out life insurance.

Step 3: Buy an annuity (if that’s the goal)

Once you have accessible cash, you can purchase an annuity to create predictable income. The annuity choice (term-certain vs life annuity) affects income level and guarantees. For the broader overview, see converting life insurance to annuity Canada.

Tax note

Taxes depend on the policy’s structure and gains. Generally, withdrawals and surrender can create taxable income; policy loans are generally not taxable when taken. Always confirm with a tax professional and refer to the Canada Revenue Agency (CRA) for official information.

FAQ

Can you convert life insurance to an annuity?

If the policy has cash value (whole/universal), you may be able to access it and use it to buy an annuity. Term life can’t be annuitized.

Policy loan vs surrender to fund an annuity?

Loans keep coverage but add interest; surrender ends coverage but may provide more cash. Both can affect taxes and death benefit.

Is it taxable?

It can be. Withdrawals/surrender can trigger taxable gains; loans are generally not taxable when taken but can trigger tax if the policy lapses.

Compare permanent life options

If you’re considering cash value life insurance as part of a retirement strategy, compare life insurance quotes and compare whole vs universal life first.