Insurance

Key Benefits of Corporately Owned Whole Life Insurance

Corporately owned whole life insurance is a popular tool used by incorporated business owners in Canada to manage tax, estate, and retirement planning. Here are the key benefits of using a whole life policy owned by a corporation:

Tax-Advantaged Growth

The cash value of a whole life policy grows tax-sheltered within the policy.
This allows the corporation to grow passive assets without triggering annual taxes on investment income, which normally faces high corporate tax rates.

Efficient Use of After-Tax Corporate Dollars

Corporations pay a lower tax rate than individuals, especially on active business income (typically 12%–15%).
Using corporate dollars to fund premiums is more tax-efficient than paying premiums with personally taxed income.

Example

To pay a $10,000 premium personally, you might need $18,000+ in gross income. Through the corporation, you may only need ~$11,500 in pre-tax income (depending on rates).

Estate Planning with Capital Dividend Account (CDA)

Upon death, the death benefit (minus adjusted cost basis) is credited to the Capital Dividend Account (CDA).
The CDA allows tax-free distribution of death benefit proceeds to shareholders or beneficiaries.
This creates a tax-efficient way to pass on wealth to heirs.

Access to Cash Value

The policy’s cash value can be accessed during the insured’s lifetime through:

Policy loans

Withdrawals

Collateral loans

borrowing from a bank using the policy as collateral

Funds accessed this way can be used for retirement, reinvestment, or emergencies, with minimal or deferred tax consequences.

Creditor Protection

In many cases, insurance policies enjoy creditor protection, especially if a family member is a named beneficiary.
This can help safeguard part of your corporate assets in the event of a lawsuit or business failure.

Supplemental Retirement Income

You can use the cash value as a source of retirement income, especially via a collateral loan strategy, where:

LThe bank lends you money based on the policy’s value.
LThe death benefit repays the loan when you pass away.
LThis provides tax-efficient retirement income without liquidating other investments.

Diversification of Corporate Investments

Many corporations accumulate passive investment income (stocks, bonds, real estate), which can impact the small business tax rate once it exceeds $50,000/year.
Whole life insurance does not count toward this threshold, making it an attractive way to diversify corporate assets without affecting small business tax eligibility.

Predictable and Stable Returns

Participating whole life policies offer guaranteed cash value growth and may receive annual dividends.

This offers stability compared to market-based investments, which can be volatile.

Is It Right For You?

Corporately owned whole life insurance is most beneficial for:

Incorporated business owners.

Those with excess retained earnings in the corporation.

Individuals interested in estate planning or tax-sheltered asset growth.

Professionals looking to complement retirement income.

This article is provided for general informational purposes only and does not constitute financial, tax, or legal advice. Corporately owned whole life insurance involves complex planning considerations and may have significant tax and legal implications.

We are not tax advisors, and we recommend readers to consult with a qualified tax professional to assess whether this strategy is appropriate for their specific corporate and personal circumstances.