Corporate-Owned Life Insurance (COLI): A Strategic Tool for Business Owners and Executives

Protecting Both Business and Legacy

For many Canadian business owners and incorporated professionals, personal financial planning and business continuity are deeply intertwined. You work hard to build a company that provides income, security, and legacy – but what happens to all that effort if something unexpected occurs? Do you even need life insurance?

That's where Corporate-Owned Life Insurance (COLI) comes in.
This often-overlooked strategy allows your corporation to own and benefit from a life insurance policy on a key individual; such as an owner, shareholder, or executive. It provides protection, tax advantages, and a path to efficient wealth transfer.

What Is Corporate-Owned Life Insurance?

In simple terms, Corporate-Owned Life Insurance is when a business purchases a life insurance policy on an owner or employee's life. The company pays the premiums, owns the policy, and is listed as the beneficiary.

Upon the insured person's death, the corporation receives the tax-free death benefit, which can be used for business continuity, debt repayment, or distribution to shareholders through the Capital Dividend Account (CDA), allowing tax-free payouts to shareholders.

Learn how Corporate-Owned Life Insurance (COLI) helps Canadian business owners and executives protect their companies, reduce taxes, and transfer wealth efficiently.

How COLI Strengthens a Business Financially

1. Protects Against Key-Person Loss

If your business relies heavily on a specific individual – whether that's you, a partner, or a senior executive – their sudden absence can cause financial disruption.
A COLI policy provides immediate capital to keep operations stable, replace leadership, or pay off business loans.

2. Supports Shareholder and Buy-Sell Agreements

In partnerships or multi-owner businesses, life insurance ensures a smooth transition of ownership.
When one partner passes away, the policy proceeds can fund a buy-sell agreement, allowing surviving partners to buy out shares without draining business cash flow.

3. Creates Tax-Deferred Growth Within the Corporation

When structured properly, the cash value component of a whole life COLI policy grows tax-deferred within the corporation.
This can serve as a low-risk investment and a source of accessible capital, offering diversification beyond traditional corporate investments.

4. Facilitates Tax-Efficient Wealth Transfer

Upon death, the insurance payout can be credited to the Capital Dividend Account (CDA), a special mechanism that allows tax-free distribution of funds to shareholders or family members.
It's one of the most tax-efficient estate tools available to incorporated professionals in Canada.

Why It's Popular Among White-Collar Entrepreneurs and Professionals

For doctors, lawyers, consultants, and executives who operate through a professional corporation, COLI offers a rare combination of corporate and personal financial advantages:

• Premiums paid using after-tax corporate dollars, often at a lower tax rate than personal income.

• Cash value growth inside the corporation, sheltered from ongoing taxation.

• Death benefit proceeds distributed tax-free, enhancing estate value.

It effectively turns your business into a financial engine that not only funds operations but also builds personal wealth.

Whole Life Insurance as a COLI Vehicle

While term insurance can serve short-term needs, whole life insurance is often the preferred vehicle for corporate-owned policies.
Its guaranteed lifetime coverage and cash accumulation make it ideal for building value inside the corporation:\; both as an asset and as a tax shelter.

The policy's growing cash value can also be leveraged for corporate loans or investments, creating liquidity without triggering taxable income.

A Strategic Tool for Business Continuity and Estate Planning

COLI does more than protect against loss – it's a cornerstone of smart corporate financial planning.
It ensures your business can survive a major disruption, maintain its valuation, and pass smoothly to the next generation or ownership group.

Combined with a shareholder agreement and an estate plan, it becomes part of a comprehensive wealth strategy that safeguards both your business and your family.

SecurePlan's Expertise in Corporate Insurance

At SecurePlan, our advisors specialize in helping business owners and incorporated professionals leverage Corporate-Owned Life Insurance for maximum financial efficiency.
We analyze your business structure, tax position, and long-term goals to design a strategy that protects your assets and minimizes your tax burden, now and in the future.

Conclusion

For Canadian business owners and executives, Corporate-Owned Life Insurance isn't an expense; it's an investment in stability, continuity, and legacy.
With the right structure, it transforms your corporation into a vehicle for protection, growth, and tax-efficient wealth transfer that benefits both your business and your family.