Business Planning → Corporate Permanent Life
Independent financial planning · Alberta & Yukon
Permanent life insurance in your corporation
When your corporation is your retirement plan, a permanent life policy owned by the company can be one way to grow savings tax-sheltered, help protect the small business rate, and pass value to your family. It isn’t right for everyone, and we’ll look at whether it fits you.
The retained earnings problem
Once a corporation earns more than $50,000 a year in investment income, its access to the small business tax rate starts to shrink. Growth inside an exempt life insurance policy doesn’t count toward that income.
The retirement bridge
You have no pension and no employer match. A policy’s cash value can be one source of retirement funds, usually by borrowing against it, alongside your other savings.
The death benefit flow
When the insured person dies, the death benefit is paid to the corporation tax-free. Most of it can then be paid to shareholders or the estate as a tax-free capital dividend.
The structure
How it works
For business owners with corporate savings and no pension, this is one strategy worth looking at.
While you’re alive
The corporation pays
The corporation owns the policy and pays the premiums. Premiums usually aren’t tax-deductible.
The cash value grows
Inside the policy, growth is tax-sheltered, with no annual tax on gains.
You can draw on it
You can borrow against the cash value, usually through a bank loan that uses the policy as collateral. You can also surrender part of the policy, which may be taxable.
On death
The corporation receives it
The death benefit is paid to the corporation tax-free.
It’s credited to the CDA
The death benefit, less the policy’s adjusted cost basis, is added to the capital dividend account.
It flows to you or your heirs
That amount can be paid out as a tax-free capital dividend.
Before you decide
What to consider
ermanent life insurance can work well inside a corporation, but it’s a long-term decision. These are the points we’ll go through together.
It’s a long-term commitment
Premiums are higher than term insurance, and the strategy works best when the policy is kept for many years.
Values may not be guaranteed
Depending on the policy, cash values and dividends can go up or down over time.
Borrowing has costs
Loans against the policy charge interest and are usually repaid from the death benefit, which reduces what your family receives.
Tax rules can change
The strategy relies on today’s tax treatment of life insurance and the capital dividend account.
Your health matters
Coverage and pricing depend on medical underwriting, so it’s easier to put in place while you’re healthy.
Cancelling early can be costly
In the first years, there’s usually little cash value. Ending the policy early often means getting back much less than you paid.
Common questions
Questions worth asking
No. It’s life insurance. The cash value grows tax-sheltered, which makes it useful in a corporate plan, but its main purpose is the death benefit. It shouldn’t replace your RRSP, TFSA or other investments.
It costs more than term insurance, and it’s not right for everyone. It tends to make sense for owners with surplus corporate savings, a long time horizon and a need for coverage for life.
It needs planning. If you sell your shares, the buyer usually won’t want the policy in the company, so it’s often moved out first, to you or a holding company. That transfer can have tax consequences, so plan it with your accountant well before the sale.