Converting Life Insurance to Annuity Canada — Process & Tax (2026)
Converting life insurance to an annuity means giving up the policy (or its cash value) in exchange for guaranteed income. This guide explains how that can work in Canada: surrender and use proceeds to buy an annuity, or use an insurer settlement option, plus tax implications and when it might make sense. For a broader overview see life insurance to annuity.
Updated March 16, 2026
Ways to get annuity-like income from life insurance
Option 1: Surrender your whole life or universal life policy and use the cash value to buy an annuity from an insurer or financial institution. You give up the death benefit. Option 2: Some policies offer a settlement option that pays the death benefit or cash value as an income stream over time instead of a lump sum. Check your contract or ask your insurer. For tax on surrenders see can you cash out life insurance and is life insurance taxable in Canada.
Tax when converting
Surrendering a policy can create a taxable gain (proceeds minus adjusted cost basis). The CRA treats the gain as income in the year of surrender. Settlement options may be taxed differently. Get advice from a tax professional before converting. For more on taxation see Canadian taxation of life insurance.
When it makes sense
Converting can make sense if you no longer need the death benefit (e.g. dependents are set, mortgage is paid) and you want predictable retirement income. Weigh the loss of life insurance protection and the annuity’s rate and terms. Compare with keeping the policy, taking policy loans, or other options — see life insurance to annuity.
FAQ
Can you convert life insurance to an annuity in Canada?
Yes. You can surrender the policy and use proceeds to buy an annuity, or use a settlement option if your insurer offers one. Tax depends on how you do it.
Is converting to an annuity taxable?
Surrender can trigger tax on the gain. Settlement options may be taxed differently. Consult a tax advisor.
When does converting make sense?
When you no longer need the death benefit and want guaranteed income. Compare keeping the policy vs annuity terms.
Compare life insurance and options
Compare life insurance quotes from 50+ Canadian providers. For cash value and surrender see can you cash out life insurance.