Corporately Owned Life Insurance

A corporation may be the owner and beneficiary of a life insurance policy. This allows the corporation to pay the premiums for that policy and collect the death benefit upon the death of the insured. Usually, the premiums are not tax-deductible but they can still be paid with corporate dollars. This is better than using after-tax personal dollars due to the difference between the small business and personal tax rates. It can net a savings of 30%+.

On death, the corporation receives a non-taxable death benefit. An equivalent amount (less the adjusted cost basis which is usually small) is added to the company's capital dividend account. This can then be paid out tax free to shareholders as a capital dividend.

It is critical that any corporate life insurance policy names the company as the beneficiary and owner, and a shareholder as the insured. If these conditions are not met there may be trouble with CRA.

Corporate life insurance is one of the most powerful wealth building and transfer strategies permitted in Canada.