with Corporate-Owned Permanent Life Insurance
As a business owner in Canada, you work hard to grow your company and protect your assets. But have you considered how life insurance—specifically corporate-owned permanent life insurance—can play a strategic role in your financial plan?
Permanent life insurance isn’t just for personal protection or estate planning. When owned by your corporation, it becomes a powerful financial tool that offers tax advantages, business continuity support, and long-term value for both your company and your family.
Let’s explore how this works and why more incorporated business owners are adding it to their toolkit.
Key Benefits of Corporate-Owned Life Insurance
1. Tax-Sheltered Growth Inside Your Corporation
One of the biggest advantages of COLI is the tax-deferred growth of the cash value inside the policy. When your corporation invests in regular passive assets (like stocks or GICs), the investment income is taxed annually—often at over 50% in some provinces.
With COLI, the cash value grows tax-free while inside the policy. That means more of your money stays invested and compounds over time, helping you build long-term value efficiently.
2. A Smarter Way to Use Retained Earnings
Many business owners leave profits inside their corporations to avoid the high tax burden of personal withdrawals. However, those funds can trigger passive income taxes that may reduce your small business deduction.
By allocating some of those retained earnings to a permanent life insurance policy, you can reduce taxable passive income, grow your capital tax-efficiently, and potentially improve access to the small business tax rate.
3. Death Benefit Paid Tax-Free to the Corporation
When the insured passes away, the death benefit is paid tax-free to the corporation. Even better: most of that amount can be credited to your company’s Capital Dividend Account (CDA).
The CDA allows your corporation to pay tax-free dividends to shareholders, enabling your estate or surviving partners to receive proceeds with minimal tax impact. It’s a powerful way to transfer wealth and preserve your legacy.
4. Supports Buy-Sell Agreements & Business Continuity
In partnerships or family businesses, a COLI policy is a natural fit for a buy-sell agreement. Upon a partner’s death, the insurance payout can be used by the surviving shareholders to buy out the deceased’s shares—without depleting cash reserves or taking on debt.
This ensures a smooth transition and protects the value of the business for all involved.
5. Access to Liquidity
The cash value of a permanent policy isn’t locked away forever. Your corporation can borrow against it or use it as collateral to secure financing.
This makes COLI a flexible asset on your balance sheet, providing a source of liquidity that can be used for opportunities, emergencies, or even tax planning in retirement.
6. Executive Retention & Succession Planning
COLI can be structured as part of an executive benefit plan, helping you attract and retain key talent. Policies can be used in Split Dollar or Retirement Compensation Arrangements (RCAs) to reward long-term employees while keeping ownership and control in the company.
Is Corporate-Owned Life Insurance Right for You?
Corporate-owned life insurance is most beneficial for:
Incorporated professionals or business owners with retained earnings
Shareholders looking for tax-efficient succession planning
Businesses with key employees or multiple partners
Companies concerned about passive investment income limits
It’s a highly customizable strategy, and like all financial planning tools, it should be implemented with professional advice.
Final Thoughts
Corporate-owned permanent life insurance isn’t just about protection—it’s about maximizing after-tax wealth, planning for the future, and protecting your business and your legacy.
If you're an incorporated business owner in Canada and haven’t explored how COLI can support your goals, now’s the time to look into it.
Want to explore this strategy for your business?
Reach out for a consultation to see how corporate-owned life insurance could fit into your broader financial plan.
