For business owners
Corporate-Owned Life Insurance
Corporate-owned life insurance is one of the most effective planning tools available to Ontario incorporated owners, and one of the most often misused. Sized to the actual exposure and held in the right entity, it delivers cash exactly when the tax arrives.
We do not start with a carrier or a policy. We start with your estate tax exposure. Insurance is the last step: the funding for a plan already built around your numbers.
The short answer
Corporate-owned life insurance is a policy owned and paid for by your corporation, usually the holding company. At death, the corporation receives the benefit, and the amount above the policy’s adjusted cost basis is credited to the capital dividend account, so it can be paid to your estate or shareholders as a tax-free capital dividend. It works when the coverage matches your real exposure and sits in the right entity.
Why corporate ownership changes the outcome
A personally owned policy pays its beneficiary tax-free. A corporate-owned policy can do more: the death benefit credits the corporation’s capital dividend account, allowing a tax-free capital dividend to the estate or shareholders.
≈ $860,000
Tax avoided when a $2 million death benefit with a $200,000 cost basis is paid out as a capital dividend instead of a regular dividend taxed at up to 47.74% in Ontario in 2026.
Why the entity matters. A policy held personally, or by the operating company when it belongs in the holding company, can miss the capital dividend account, face creditor exposure and fail to fund succession as intended. Getting ownership right at the start costs far less than correcting it later.
The coverage gap. The most common problem is not missing coverage. It is coverage sized for yesterday’s business. A company that grew from $2 million to $5 million can carry a gap of roughly $800,000 against the tax at death.
Retained earnings put to work. Surplus that is tax-inefficient to withdraw personally can fund premiums inside the holding company, with the death benefit later flowing out through the capital dividend account.
Personal vs corporate-owned: side by side
| Owned personally | Owned by your corporation | |
|---|---|---|
| Paid with | Money taxed at your personal rate (up to 53.53%) | Money taxed at the corporate rate (12.2% on small business income) |
| Pre-tax income needed for a $20,000 premium | About $43,000 | About $22,800 |
| How the benefit reaches family | Tax-free to the named beneficiary | To the corporation, then mostly out tax-free through the capital dividend account |
| Exposure to business creditors | None | Depends on which company owns it. A holding company is safer than the operating company. |
The $43,000 figure assumes you would otherwise pay yourself salary to cover the premium. Your accountant can confirm the numbers for your situation.
What it costs, and when it fits
Premiums are generally not tax-deductible. The advantage is that they are paid with lower-taxed corporate dollars, so the same coverage costs roughly half the pre-tax income.
- It usually fits when the company holds surplus, there is a permanent tax bill at death to fund, and the owner is insurable.
- It may not fit when the business needs every dollar, or the need is temporary. A term policy, owned personally, may be enough.
Five common mistakes
- Owned by the operating company when a sale is likely. Moving the policy out later has tax consequences.
- The company pays, but a family member is named beneficiary. That can be a taxable benefit to you.
- Coverage sized to an old business value.
- No one files the paperwork to pay the capital dividend tax-free. It is a form your accountant files with the CRA after death, so nobody files it unless it is planned.
- One quote from one insurer. Design and cost differ a lot between companies.
What we review and design
- Your estate tax exposure: the liability the insurance needs to fund, based on today’s value
- Existing coverage: right entity, right amount, structured for the capital dividend account
- The coverage gap: the dollar difference between today’s benefit and the obligation
- Capital dividend account mechanics: how proceeds flow and when the subsection 83(2) election is filed
- Buy-sell funding: whether your shareholder agreement is funded to current value
- Policy design: permanent coverage where the need is permanent, flexible coverage where it is not
- Carrier comparison: Sun Life, Canada Life, BMO Insurance, RBC Insurance, Equitable Life, Desjardins, iA Financial Group and Manulife
The independent broker difference
Eight insurers, one recommendation
Eagle Wealth Partners places coverage through HUB Financial, a managing general agency, and compares eight major Canadian life insurers rather than one company’s product shelf. Differences in design, cost and dividend treatment between carriers on a corporate policy can be significant. One quote from one company is not planning.
How it works
01
Discovery call, 30 minutes
A focused conversation about your corporate structure, assets, family situation and goals. No forms and no product discussion.
02
Exposure and coverage review
We map your estate tax exposure and audit existing policies: owner, death benefit, cost basis and capital dividend account treatment.
03
Coverage gap report
We show the dollar gap between your obligation and your coverage, and the tax effect of your current structure versus the right one.
04
Carrier comparison and design
We design the coverage and compare solutions across eight insurers on structure, cost and capital dividend account treatment.
05
Implementation and review
We coordinate with your accountant and lawyer, then review the coverage regularly as your business value changes.
Related services
- Estate Tax Exposure Assessment
- HoldCo / OpCo Structure Review
- Shareholder Buy-Sell Funding
- Estate Freeze Planning
- Permanent Life Insurance as a Family Asset
Related reading
Frequently asked questions
How does corporate-owned life insurance create liquidity?
The corporation owns and pays for the policy. At death, the tax-free benefit is paid to the corporation, which can use it to pay estate tax, fund a buy-sell and pay a tax-free capital dividend to the estate through the capital dividend account.
How often should corporate insurance be reviewed?
At least every few years, and whenever business value grows significantly, a holding company is added, an estate freeze is done or shareholders change.
Is there a minimum size to work with Eagle Wealth Partners?
We work best with owners whose estate would face a tax bill of $200,000 or more at death. If you are unsure, the 3-minute Quick Scan is a good starting point.
Are corporate life insurance premiums tax-deductible?
Is corporate-owned life insurance better than personal?
What happens to a corporate policy if I sell my business?
Does the policy’s cash value count against the small business tax rate?
Does your corporate insurance still match your exposure?
Book a free 30-minute call. We will compare your coverage with today’s business value and estate tax. No obligation.
General educational information. Legal, tax and insurance decisions require advice appropriate to your circumstances.
