How are death benefits from a personally-owned life insurance policy typically treated for tax purposes in Canada?

Question: How are death benefits from a personally-owned life insurance policy typically treated for tax purposes in Canada?

Answer options:

• They are fully taxable to the beneficiary. ✅ They are paid to the beneficiary tax-free.
• They are taxed as a capital gain.
• 50% of the benefit is included in the beneficiary's income.

Correct answer: They are paid to the beneficiary tax-free.

Explanation: In Canada, the death benefit from a life insurance policy is generally received by the named beneficiary entirely free of income tax.