Yes, a Canadian corporation can hold life insurance policies on the lives of its shareholders, directors, or key employees. This strategy, called corporate-owned life insurance (COLI), allows businesses to fund buy-sell agreements, protect against key person losses, and create tax-efficient wealth accumulation. The corporation pays the premiums (which are not tax-deductible), and when the insured person dies, the death benefit is paid tax-free to the corporation. However, there are specific CRA rules that govern how the proceeds can be used and whether capital gains tax applies to the policy's investment growth. Life insurance held in a corporation serves different purposes than personal policies: - Buy-sell agreements: When a business partner dies, the corporation receives the insurance proceeds to buy out their share from their estate, keeping the business intact. - Key person protection: If a critical employee or founder passes away, the payout helps the company cover losses and transition costs. - Retained earnings growth: The cash value of permanent life insurance (whole life or universal life) grows tax-sheltered within the corporation. - Estate and succession planning: Corporate life insurance can fund shareholder buyouts without depleting company cash flow.
No, the death benefit is generally paid tax-free to the corporation. However, if the policy's cash value exceeds premiums paid and the policy is surrendered before death, any gain may trigger a capital gain. At death, the full benefit flows in tax-free.
No, life insurance premiums are not tax-deductible as a business expense. They are paid with after-tax corporate dollars. This is true even if the insurance protects against a specific business loss.
Insurable interest means the corporation stands to suffer a genuine financial loss if the insured person dies. CRA requires insurable interest to exist when the policy is issued. Without it, CRA may deny the tax benefits of corporate ownership.
Yes. Self-employed people who have incorporated can hold life insurance in their corporation. You can use [the self-employed tax estimator](/tools/self-employed-estimator) to see how corporate structure affects your overall tax plan.
Corporate-owned insurance is held by the company itself. Cross-owned insurance (common in partnerships) is owned by individual shareholders who name each other as beneficiaries. They have different tax and legal consequences.