Corporate-Owned Life Insurance in Canada: Tax Rules, Structure and Fit

The first question I get about corporately owned life insurance is whether the corporation can deduct the premiums. Generally it cannot, and if a deduction is the reason you are looking at this, you can stop here. The case for it has nothing to do with deductions.

I have often heard it described as a corporately owned TFSA, and that gets close. Take the same retained earnings and put them in two different places.

This page covers how each of those three rows works, what a properly structured policy looks like using current illustration figures, when a corporation should not do this, and what your corporation has to hand over to get one issued. If participating whole life is the asset you are weighing, the investment-grade participating whole life guide goes deeper on the product itself.

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What Corporate-Owned Life Insurance Is and How It Is Set Up

Corporately owned life insurance is any life insurance policy that a corporation owns, pays for and names itself the beneficiary of, on the life of a shareholder or key person. For the corporate investing and estate purposes on this page, the policy is permanent, usually participating whole life or universal life, because those are the policies that build cash value the corporation holds as an asset. Corporations also own term insurance for key person and buy-sell needs, and that is often the right first step for a younger company.

It is a very unique asset class for a corporation. There is no other place a corporation can put retained earnings where the growth is not taxed as it accrues, the growth does not count as passive income, and the eventual payout has its own route out of the company. All three of those depend on one thing being set up correctly on day one.

The corp is the owner of the policy. The corp is the beneficiary of the policy. The corp is the payer of the policy. That is the whole structure, and it is the part I see done wrong most often when a policy was sold by someone who does not work with corporations regularly. Which corporation owns it matters as well, and that decision is usually made too casually.

None of this makes the death benefit itself taxable. Life insurance proceeds are received tax free by the corporation the same way they would be by a person, which is covered in when life insurance is taxable in Canada. What ownership changes is who controls the cash value while you are alive, and how cleanly the money gets back to the people it was meant for.

Who Corporate-Owned Life Insurance Is Right For, and Who It Is Wrong For

Corporately owned life insurance suits an incorporated business owner or professional who already has retained earnings in the corporation, expects them to keep growing, has a real need for permanent coverage, and does not need that money back personally in the next several years. It is the wrong answer for a corporation whose surplus might be needed soon, for an owner who wants short-term coverage only, and for anyone buying it purely as a tax fix.

It is important to have some stability as it relates to the corp. Is this money you are investing as part of an overall strategy? Are your earnings going to continue? Do you expect retained earnings to continue to grow? Is there any major expense upcoming for the corporation? These all play a part, and I ask every one of them before an illustration gets run.

Four yes answers and this can be an excellent strategy. The reverse is just as clear. If someone is mainly sold on the tax pitch and thinks this solves every tax problem in the corporation, I flag it. It is attractive, to be clear, but it is not something that magically fixes a tax situation, and the client who has no desire for the insurance itself is the wrong client for it.

Where the need is protecting the business itself rather than growing surplus, the structure is the same but the sizing is different. Key person coverage and buy-sell funding each have their own pages. Incorporated Ontario physicians weighing this against association coverage should read the OMA insurance review alongside this one.

Tax Benefits of Corporate-Owned Life Insurance: What Is Actually True

The tax benefits of corporately owned life insurance are three: premiums are paid with corporate dollars taxed at a lower rate than personal income, the cash value grows inside an exempt policy without annual tax, and the death benefit is received tax free by the corporation and can be moved to shareholders through the capital dividend account. The premiums themselves are generally not deductible. Taking cash out during the insured’s lifetime can create a taxable policy gain: an insurer policy loan is taxable to the extent it exceeds the policy’s adjusted cost basis, and a partial withdrawal is taxable to the extent it exceeds the proportionate share of the adjusted cost basis allocated to it, which means a withdrawal can be partly taxable even when it is smaller than the total ACB.

For a $10,000 premium, inside the corporation you only need roughly $11,300 of pre-tax corporate money at the 2026 Ontario small business rate. Take that same money out personally at the top Ontario bracket and you need roughly $21,500. That is the difference on $10,000. Imagine it on $30,000 or $50,000 a year, and that advantage compounds for as long as the policy is funded.

Think of it like a TFSA, in one narrow way. It is not tax deductible, but there is no tax consequence on the growth while it stays inside the policy. That is where the comparison ends. A life insurance policy is not a TFSA: it carries insurance costs a savings account does not, and taking cash value out can create a taxable policy gain. The room is also different. A TFSA has a contribution limit the government sets; a policy has a limit the exempt test sets, and the policy’s room is usually far larger. Where the corporate-dollar gap comes from is plain when the rates sit side by side.

Federal rates from the Canada Revenue Agency corporation tax rates page. The $11,300 and $21,500 figures are rounded illustrations at these rates. Provincial rates change; confirm the current combined rate for your province with your accountant.

The tax advantage is real, and it is also the least interesting part of a well-built policy. The people who get the most out of this are not chasing a deduction. They are moving money that is already taxed and already sitting in the company into an asset class that a corporation cannot otherwise access, and that is a different decision from buying a tax break.

Passive Income Rules and the Small Business Deduction (Most Owners Get the Ontario Part Wrong)

Passive investment income inside a Canadian-controlled private corporation reduces the federal small business limit by $5 for every $1 of investment income above $50,000 in the prior year, and eliminates it entirely at $150,000. Growth inside an exempt life insurance policy is not investment income for this test, which is why a corporation can shelter surplus in a policy without touching its small business rate. Ontario and New Brunswick do not apply the same reduction to their provincial small business rate, so the cost of losing the deduction is smaller in those two provinces than most explanations suggest.

Once your passive income goes beyond $50,000, for every dollar over, you lose $5 of the small business deduction limit. By the time you hit $150,000 you have completely lost it. What is happening now is more corporations, physicians, dentists, small business owners, are leaving more money in the corp because they do not want to be taxed personally. Which makes sense, but that is causing a future tax problem, because the money left inside has to earn something, and what it earns is exactly what this rule counts.

Federal rule, based on the associated group’s combined investment income from the previous tax year. Source: Canada Revenue Agency, small business deduction rules.

Here is the part almost every article, and most accountants’ quick summaries, get wrong. The $5-for-$1 reduction is a federal rule. Provinces were free to copy it, and most did. Ontario and New Brunswick did not. In those two provinces a corporation that has lost its federal small business limit still gets the provincial small business rate on its first $500,000 of active income.

Ontario’s position is on the CRA Ontario small business deduction page. Ontario is also reducing its non-eligible dividend tax credit from January 1, 2027, which makes retained earnings more expensive to take out personally as a regular dividend. Confirm the current figures with your accountant.

Does the smaller Ontario penalty change my recommendation? No. Corporately owned insurance is a unique asset class with unique features that in the right scenario can be very attractive, and that is what I am looking at. Is there an insurable need? Are there retained earnings? Is there potential future growth of those retained earnings? The passive income grind is one more reason to move surplus into the policy, and in Ontario it is a smaller reason than people are told. It was never the main one.

How the Capital Dividend Account Pays Out the Death Benefit

When the insured dies, the corporation receives the life insurance death benefit tax free, and the death benefit minus the policy’s adjusted cost basis (ACB) is credited to the corporation’s capital dividend account (CDA). The corporation can then pay that credited amount to Canadian-resident shareholders as a capital dividend, which is tax free to them, by passing a directors’ resolution and filing an election with the Canada Revenue Agency before the dividend is paid. Any portion of the death benefit above the CDA credit stays in the corporation and, if it is paid out to shareholders, comes out as a regular taxable dividend.

What happens is the death benefit creates a credit to this notional account called the capital dividend account, and that credit is what allows tax-free capital dividends to be paid to the estate or the shareholders. You do not need to remember the name. It is an accounting mechanism. What you do need to understand is the one number that decides how much of the death benefit gets that treatment.

Technically there is this small adjusted cost that eventually grinds down, in many cases to zero. By the time you are 30 years into a typical policy the ACB is often close to nil, so most or all of the amount goes out tax free, and the accountant files one form. If death happens in the first few years, part of the death benefit sits outside the CDA. The actual ACB depends on the policy design and the funding pattern, and it is a figure the insurer reports, so it gets checked against the insurer’s numbers rather than assumed.

The rules for the CDA and the election are in the CRA’s Income Tax Folio S3-F2-C1, Capital Dividends. Missing the election deadline is expensive; this step belongs with your accountant, not your advisor.

Two things the CDA does not do. It gives no credit for money taken out while the insured is alive: a withdrawal, a policy loan or a surrender never touches the CDA, only the death benefit does. And borrowing changes the arithmetic differently depending on who lent the money. With an ordinary bank loan secured by a collateral assignment, the corporation stays owner and beneficiary, the full death benefit is treated as received by the corporation even though the lender is repaid out of it, and the CDA credit is generally still the full death benefit less the ACB; the loan simply means less cash is left over. With a policy loan taken from the insurer, the insurer pays the death benefit net of the outstanding loan, and the CDA credit is based on that reduced amount less the ACB. That difference is one of the reasons a bank loan is usually the better route on a larger policy, which the borrowing section covers.

Timing matters as well. Where a business owner’s shares pass to a Canadian-resident spouse or common-law partner, or to a qualifying spousal trust, the capital gain on those shares can generally be deferred under the spousal rollover until the survivor dies or disposes of them. That is why corporately owned policies for a couple who own the business together are so often written as joint last-to-die: the death benefit arrives when the deferred tax does. Where the shares go anywhere else at the first death, the gain is taxed then, and the coverage is designed differently. The CDA has its own page on this site, the capital dividend account and life insurance, which goes through the other things that create CDA credits and how the balance is tracked between deaths. Here, the point is narrower: the tax-free exit is real, and it is a formula, not a promise.

Base Premium vs Additional Deposits: Why Two Policies With the Same Premium Are Not the Same Policy

A corporately owned participating whole life policy is built from two parts: a base premium that buys the guaranteed coverage, and additional deposits (Manulife calls it the deposit option, Canada Life calls it the additional deposit option) that buy paid-up insurance and drive the early cash value. Two policies with the same total premium can produce very different cash values depending on how that total is split, and the split is decided at issue.

With corporately owned insurance, the most important thing is to have the utmost flexibility: a structure that lets you maximum fund the policy when the corporation can, and lets you reduce the premium significantly if you have to. So when you first set up a policy it is imperative to max fund with additional deposits, or at least build the room into the structure, and from there have the ability to adjust the premium down in the future if required. Here is what that looked like on a real file last fall.

I do not think the original proposal was a bad solution, to be clear. It is just not the right solution when it comes down to numbers, structure, death benefit and cash value. The 10-pay is more of an older client play, an estate play, where nobody is worried about cash value. And the honest part: the 10-pay’s cash value does eventually overtake, but not until around age 80. For the first 25 years the restructured policy is so much further ahead that having access to five or six million dollars by year 20 matters more than a death benefit that is a couple of million higher fifty years out.

The same principle holds at ordinary corporate sizes. In March 2026 I ran one Manulife Par policy three ways for a couple in their forties: same $1,000,000 of joint last-to-die coverage, same $15,747 guaranteed base premium, same paid-up insurance dividend option. Only the deposit pattern changed.

Manulife Par, joint last-to-die, male 45 and female 42 non-smokers, pay to age 90, paid-up insurance dividend option. Total cash value on the current dividend scale, non-guaranteed. On the alternate scale one percentage point lower, year 40 cash values are $800,940, $757,126 and $918,687. Guaranteed cash value is identical in all three ($648,875 at year 40) because the base is identical. Premiums stop when the policy goes on premium offset, which is not guaranteed and can move if the scale changes. Illustrative only, not an offer of coverage.

Roughly $37,000 more in, about $390,000 more cash value at year 40, and three fewer years of writing cheques. That is the whole argument for front-loading when the corporation has the money. The one caveat: if you expect an influx of capital, if retained earnings are expected to grow significantly or a sale of the corporation is possible, you may not start at the maximum. You leave room, because flexibility within the corp is worth more than a year of extra deposits. And the flexibility runs the other way too. If you ever needed to, the $200,000 of deposits on that first file could be stripped away and the client would be left paying the $130,000 base, and after year five that policy could stop taking premiums entirely.

Getting a quote for a participating policy does not mean you got the right quote. Two illustrations from the same company are not necessarily equal, and if the person running them does not minimise the base and maximise the deposit room, the numbers will look a lot worse than they should. If you already have an illustration in hand from a bank or another advisor, send it over and I will show you what the same premium looks like structured properly, across the permanent life insurance carriers we place with. Get in touch and attach the PDF.

Whole Life or Universal Life Inside a Corporation

Participating whole life is usually the stronger corporate asset when the corporation expects to borrow against the policy, because the guaranteed cash value and non-negative dividends give lenders stable collateral. Universal life is often the better fit when the priorities are maximum exempt-policy funding room, control over the investment accounts, and the ability to cut the deposit down to the insurance cost alone if corporate cash flow tightens. Both are exempt policies, both create a capital dividend account credit, and both fail if the face amount and death benefit option are wrong for the deposit.

Universal life makes more sense when you are not intending to borrow against it. You want sheltered growth and a death benefit, and you are comfortable with the market moving. If you intend to borrow against the policy at some point, whole life is the better tool. It is simpler to borrow against and the underlying value is stable. Whole life is sort of like a fixed income product in how it behaves, a conservatively managed insurance asset that has been around 180 years and slowly and steadily grows; universal life follows whatever the underlying investment does.

With universal life we can separate the cost of insurance from the savings component. If a corporation is putting in $100,000 a year and wants to stop the savings portion, the deposit can drop to the insurance cost only. With whole life the premium is combined, you cannot pull the two apart. That flexibility is why I lean toward universal life for some incorporated clients, and why the structure has to be right on day one. Here is what “right” and “wrong” look like on the same money, using Beneva UL illustrations I ran this year.

Beneva universal life, male 45 non-smoker, yearly renewable term cost of insurance, daily interest account at the illustrated rate with the guaranteed 1% bonus from the sixth anniversary. Non-guaranteed values. On the alternate scenario two points lower, the right-structure fund is $627,191 at year 20 and the policy runs out of money in year 44 without further deposits, which is the universal life risk covered further down. Illustrative only, not an offer of coverage.

Same carrier, same insured, same $500,000 in over 20 years. One version shelters $800,000 and the other shelters $287,000 and parks the rest where it earns nothing, because the face amount was too small for the deposit and the level death benefit left no exempt room. A quote is not a structure. When the structure is right, paying faster is also cheaper: solving the same $500,000 increasing policy to the same year-20 value costs $11,365 a year for 10 years, or $7,316 a year for 20, and the ten-year version is $32,670 less out of the corporation for the same result.

Most of the major carriers offer a universal life product a corporation can own, and the investment menus vary: several offer index-linked accounts alongside managed funds, others lean on managed funds and guaranteed accounts. When I shortlist corporate universal life right now, it is usually Beneva, Manulife and BMO, and of those Beneva has been illustrating the strongest for my clients, mainly on cost of insurance. That could look different two years from now, which is the point of comparing at the time you buy rather than picking a name. For participating whole life, three companies write most of these policies in Canada, and the dividend scale everyone asks about is not the deciding factor: scales sit in a narrow band, and cost of insurance and how much deposit room the product allows are what separate two whole life illustrations. The permanent life insurance guide covers the products themselves in more depth.

Borrowing Against a Corporate Policy: Policy Loans, Bank Loans and Immediate Financing Arrangements

A corporation can access the cash value of a corporately owned life insurance policy without surrendering it in two ways, and they are taxed differently. A policy loan from the insurer needs no qualification and no minimum premium, but it is a disposition of the policy: any loan amount above the adjusted cost basis is a taxable policy gain, and an unpaid balance reduces the death benefit at death. A collateral loan from a bank that takes the policy as security is generally not income to the corporation, does not touch the policy’s tax position, and leaves the capital dividend account credit intact, but lenders typically want an annual premium of roughly $30,000 or more before they will look at the file. In both cases the policy keeps growing while the loan is outstanding, and whether the interest is deductible depends on what the borrowed money is used for.

Thirty thousand seems to be the minimum third-party loan out there right now, but keep in mind that life insurance companies will do policy loans without a premium threshold to qualify. So there is more than one funding option when it comes down to borrowing. It really comes down to the situation at that time: comparing the market, third-party lenders, the insurer’s own policy loan, and what the best option would be for that file.

I have had multiple cases where bank loans were more attractive simply on rate. The policy loan typically works better for smaller amounts and shorter periods, where it is quick to do through the insurer and the loan is repaid within a few years. Long term and for larger policies, bank rates almost always win, and the bank route leaves the death benefit and the CDA credit whole. The security for the bank is the policy itself, and the reason lenders like these policies is that a participating whole life cash value does not go negative. In my experience lenders advance somewhere between half and ninety percent of the cash value, occasionally more, and the qualification is not what most business owners expect.

An immediate financing arrangement, an IFA, is the version of this that gets the most attention. You put money in and you take it back out immediately. The corporation deposits the premium into the policy and, on the same day or shortly after, a bank lends that amount back against the policy as collateral, so corporate cash flow is essentially uninterrupted and the policy is still growing. Insurers underwrite these differently: at least one carrier we place with wants the deposits and premiums to sit within roughly 10 to 20 percent of the client’s net worth, a letter naming the lender, a copy of the loan agreement and a needs analysis showing the case is not driven by the investment concept alone.

The concept is what appeals to people. The opportunity and the flexibility to execute is what they are buying. But I find most clients do not actually borrow unless a need or an opportunity shows up, and a policy that is built to be borrowed against and never is has lost nothing. The two pages that go deeper are the insured retirement plan guide, which walks through the retirement-income version with figures, and collateral assignment of life insurance, which covers what the bank actually asks for when the policy is pledged.

One caution before you build a plan around borrowing. Someone who is already debt heavy should think twice, and anyone who is uncomfortable carrying a loan into their eighties should not do this at all. The client should have a real insurance need or a real tax and estate problem, and stable long-term income. If cash flow is not stable, this is not the first thing I would recommend.

Risks and Disadvantages of Corporate-Owned Life Insurance

The main disadvantages of corporately owned life insurance are that the money is committed for the long term and taxable if surrendered, withdrawn or borrowed from the insurer beyond the applicable adjusted cost basis, that the policy’s cash value is a passive asset that can affect whether the corporation’s shares qualify for the lifetime capital gains exemption and can raise the value of those shares on the owner’s final tax return, that moving an existing policy into or out of the corporation is a taxable disposition, and that the illustrated values depend on a dividend scale or investment return that is not guaranteed. A policy that is underfunded or set up on premium offset can also see its death benefit fall for a period.

I back test policies for my clients quite conservatively. Every illustration on this page was run on the current scale and on a scale one or two points lower, and the lower one is the one I plan around. These are the things that go wrong, roughly in the order I see them.

One more that catches people who already own a policy. What I have seen is a corporately owned policy transferred to the individual, or a personal policy transferred into the corporation. This can create a tax issue that the owner is not aware of, because the policy has a value and there is a deemed disposition when it changes hands. Moving an existing policy in is often still worth doing, and it is a process we have completed many times, but the transfer value and the tax on it are worked out with the accountant before the ownership form is signed, not after.

Total death benefit on the $20,000-a-year Manulife Par illustration from the structure section, current dividend scale. When a policy goes on premium offset the insurer uses dividends to pay the premium instead of buying more coverage, so the death benefit drifts down for roughly a decade before the guaranteed base and remaining dividends carry it back up. Offset is not contractual and its start date moves with the scale.

The universal life version of this can be more severe, particularly with yearly renewable term insurance costs and non-guaranteed investment accounts, because there is no guaranteed floor under the fund. A yearly renewable term policy is used often and can be very successful. But there is a level of ensuring it is adequately funded and designed not to collapse, because otherwise there is a significant shock later. The slow bleed is a policy that was underfunded or did not perform like the original illustration, with insurance costs rising every year against a fund that is not keeping up.

Beneva universal life, $500,000 increasing death benefit, male 45 non-smoker, yearly renewable term cost of insurance, $11,365 a year for 10 years, solved to the minimum that carries the policy to age 100 on the illustrated rate. Non-guaranteed. This is what a minimum-funded YRT policy looks like when the return comes in below the illustration, and it is why a corporate universal life policy is funded well above the minimum or built on a level cost of insurance.

None of these is a reason not to do it. They are the reasons it gets done with an accountant in the room, a holding company where one exists, an alternate-scale illustration in the file, and enough funding flexibility that a bad year for the corporation does not become a bad decade for the policy. Where the ownership question is part of a bigger succession plan, an estate freeze with life insurance is often the structure the accountant will raise, and it changes which company should own the policy.

How a Corporate-Owned Policy Gets Built and What Your Corporation Has to Hand Over

A corporately owned life insurance policy is applied for by the corporation as owner and beneficiary, on the life of the shareholder or key person, and is underwritten in two parts: medical underwriting of the insured, and financial underwriting of the corporation to confirm the coverage amount is justified. The corporation supplies its incorporation documents, ownership confirmation, business number, two years of financial statements and banking details; the insured supplies identification and, at larger amounts, a personal net worth summary. Once issued, the policy is a corporate asset and the premiums are paid from the corporate account.

The order of operations matters. The owner is decided before the application is submitted, because changing ownership to a corporation after underwriting means new forms and a refile, and changing it after issue is a taxable transfer. The accountant is consulted before the illustration is finalised, not after the policy is issued. The illustration is run on the current scale and on a lower one, and the funding plan is set from the lower one.

The accountant piece is not a formality. On more than one file the client’s accountant was not well versed in corporately owned policies, and the solution was to arrange a meeting between the accountant and the tax and estate team at the insurance company so the CDA mechanics were coming from a source the accountant trusted. That conversation usually takes one call and it removes the objection that stalls most of these files. This is the list I send the client the same day we agree to proceed.

How much of that gets scrutinised depends on the coverage amount. Below a few million dollars, most corporate cases are underwritten on the application and the financial statements. Above that, the carriers we place with move in steps, and the steps are similar across the market even though the exact thresholds differ.

Key person and buy-sell cases are sized to the business rather than the person, typically a multiple of the key person’s compensation or the owner’s share of fair market value, and the carrier will want to see the agreement or the valuation behind the number. Estate and accumulation cases are sized to net worth. The financial underwriting on a $5 million corporate policy is closer to a bank loan file than to a term application, which is why the document list above goes out on day one and not when the underwriter asks. Larger and more complex corporate files, and the way carriers treat them, are covered in life insurance strategies for high net worth individuals.

Frequently Asked Questions About Corporate-Owned Life Insurance

Yes. A corporation can own a life insurance policy on a shareholder or key person and pay the premiums from corporate funds, provided the corporation is also the beneficiary. The premiums are not deductible, but they are not a taxable benefit to you either when the corporation is owner, payor and beneficiary. If the corporation pays and a family member is named beneficiary, the premiums generally become a taxable shareholder benefit.

No. The corporation receives the death benefit tax free. The death benefit minus the policy’s adjusted cost basis is credited to the corporation’s capital dividend account, and that amount can be paid to Canadian-resident shareholders as a tax-free capital dividend once the directors declare it and the election is filed with the CRA. Any part of the death benefit above that credit stays in the corporation or, if distributed, is paid out as a regular taxable dividend. The adjusted cost basis typically declines toward zero as the insured approaches life expectancy, so a policy that pays out late in life is often fully or almost fully sheltered.

Generally no. Life insurance premiums are a non-deductible expense for a corporation, the same as for an individual. The narrow exception is a portion of the premium on a policy that a lender requires as collateral for a loan, and even that is limited to the net cost of the pure insurance. The advantage of corporate ownership is not a deduction. It is that the premiums are paid with dollars taxed at the corporate rate rather than at your personal marginal rate.

Often the holding company, where one exists. It may help keep the cash value separate from the operating business’s creditors and out of a future sale of the operating company, although that protection depends on the corporate structure and any guarantees the holding company has given and is never absolute. It also keeps a passive asset out of the company whose shares you may want to qualify for the lifetime capital gains exemption. Key person and buy-sell coverage often sits in the operating company because that is where the business need is. Your accountant makes this call with you before the application is signed, because moving the policy later is a taxable transfer.

Yes, and we have done it many times. The catch is that the transfer is a deemed disposition of the policy at a value set by the tax rules, so there can be a taxable policy gain to you personally in the year of transfer, and the corporation’s adjusted cost basis in the policy resets. Whether it is worth doing depends on the policy’s cash value, its adjusted cost basis and how the corporation will use it. The accountant runs those numbers before the ownership change form is signed.

It can, through borrowing rather than withdrawing. The corporation pledges the policy as collateral, a bank advances a loan or a line of credit each year, and the corporation pays you a dividend from the proceeds. The corporation receives the bank loan tax free, but the dividend you receive is taxable to you personally, and the loan is repaid from the death benefit while the capital dividend account credit is generally still based on the full death benefit less the adjusted cost basis. A policy loan from the insurer works differently and can be taxable above the adjusted cost basis. This is the corporate insured retirement plan. It is a concept, not a product, and it suits owners with stable long-term income who are comfortable carrying debt into retirement. It does not suit anyone who is already debt heavy.

Pros: premiums paid with lower-taxed corporate dollars, cash value growth that is not taxed annually and does not count as passive income against the small business deduction, and a death benefit that can leave the corporation tax free through the capital dividend account. Cons: the money is committed long term and taxable if withdrawn early, the cash value is a passive asset that can affect the capital gains exemption and the value of your shares at death, the illustrated values are not guaranteed, and a policy set up with the wrong owner, beneficiary or funding structure is expensive to fix. It is a strong tool for a corporation with surplus it does not need back, and a poor one for a corporation that might.

You get an illustration, not a quote, and the illustration is only as good as its structure. Ask for it to be run with the base premium minimised and the additional deposit room maximised, on the current dividend scale and on a scale at least one point lower, with the corporation as owner and beneficiary. Ask what the maximum annual deposit is and whether your intended premium fits inside it. If you already have an illustration from a bank or another advisor, an independent broker can run the same premium across several carriers and show you the difference, which is usually larger than the difference between the carriers themselves.

Next Steps for Your Corporation

Corporately owned life insurance is an efficient long-term accumulation strategy for a corporation with surplus it does not need back, and it is not only about the death benefit. It is also not for everyone, and the honest first step is finding out which side of that line your corporation is on before anyone runs an illustration. That conversation is free, it takes about thirty minutes, and it works best with your most recent financial statements in front of you.

Protect Your Wealth is an independent brokerage offering life insurance and segregated fund solutions. We compare permanent policies from the major life insurance companies in Canada, including the carriers that write most corporately owned participating and universal life in this country, and we work alongside your accountant rather than around them. Incorporated self-employed Canadians weighing carriers can also read our comparison of life insurance companies for self-employed Canadians.

Based in Hamilton, Ontario, and licensed to serve clients in Ontario, British Columbia, Alberta, Manitoba, Saskatchewan, New Brunswick and Nova Scotia. This page is general information about how corporately owned life insurance works in Canada. It is not tax, legal or accounting advice. Illustrated values are not guaranteed, and the tax treatment of any policy depends on your corporation’s facts, which should be confirmed with your accountant and, where a holding company or shareholders’ agreement is involved, a tax lawyer.