Life insurance has long been used as a financial and estate planning tool for business owners. Whether it’s help to cover a tax liability at death, to ensure adequate funding for a shareholders’ agreement, or to put a capitalization program in place for a shareholder’s policy, a life insurance policy will often be purchased by a corporation or a group of corporations, or even a trust. In certain situations, there are specific rules around choosing the owner, premium payor and beneficiary of the policy that must be followed to avoid unexpected – and undesired – tax and legal repercussions. With that in mind, the purpose of this document is to outline how life insurance can be used as a financial and estate planning tool for business owners.

Why corporate-owned life insurance?

There are a number of business reasons that might justify corporate ownership of a life insurance policy. Generally, corporate ownership of insurance will, if the applicable rules are followed, produce definite advantages from a financial, tax and legal perspective. These advantages, which we’ll look at in more detail later in this document, include the ability to utilize the capital dividend account (CDA), protection for the policy against creditors, streamlined policy management, a more equitable sharing of premium payments, and reduction of the tax cost of the premium.

While these are valuable benefits, certain tax rules must be satisfied in order to get the most out of them. In some situations, and specifically where a group of companies is involved, it’s important to clearly establish who will be the policy owner, who will be the beneficiary for the death benefit, and who will pay the premium. This step is critical, because if life insurance is not placed in the correct manner, there may be unfavourable financial and tax implications.


Despite the position taken by the CRA in 2010 and, more recently, in the 2016 federal budget, you still need to do the proper planning when it comes to corporate-owned life insurance. As there is no one-size-fits-all solution, it’s important that you evaluate needs and situations in order to identify the most appropriate ownership structure. It’s important also to consult legal and tax advisors before settling on a specific ownership structure, especially in situations of greater complexity.