Accessing Policy Cash Value: Withdrawals and Loans

In short

There are three routes: withdraw from the policy, borrow from the insurer, or borrow from a bank using the policy as collateral.
Withdrawals and insurer loans can be taxable. A bank loan against the policy is debt, not income, under current rules.
Every route reduces what your family receives at death, and loans carry interest-rate and lender risk.

The three routes

Route	How it's taxed	Main drawback
Withdrawal (partial surrender)	Taxable to the extent it exceeds the matching share of the policy's cost basis	Permanently reduces the policy and its death benefit
Policy loan from the insurer	Taxable to the extent the loan exceeds the policy's cost basis	Interest accrues, and the loan reduces the death benefit
Bank loan with the policy as collateral	Not income, because it is a loan from a third party	Interest, lender terms and the need to keep the loan in good standing

How the bank-loan route works

This is the structure usually meant by an “insured retirement plan”. The corporation builds cash value in a policy over many years. Later, a bank lends against that cash value. The policy stays intact and keeps growing. On death, the death benefit repays the loan and the rest goes to the corporation and, through the capital dividend account, to the family.

Who borrows matters. If you borrow personally using the corporation's policy as collateral, you may need to pay the corporation a guarantee fee to avoid a taxable benefit. If the corporation borrows and pays you, that payment is taxed as salary or a dividend.
Interest can be capitalised. Many lenders let interest add to the loan. The debt then grows every year.
The lender sets the terms. Loan-to-value limits, rates and renewal are the bank's decision and can change.

What can go wrong

Rates rise faster than the policy grows. If loan interest outpaces the policy's growth for long enough, the loan can approach the cash value and the bank can ask for repayment or more collateral.
Dividends come in lower than illustrated. Projections use the current dividend scale, which isn't guaranteed.
You live a long time. A loan that compounds for thirty years is much larger than one that compounds for fifteen.
Tax rules change. The treatment described here reflects current law and CRA practice.

A well-built plan is tested against lower dividends and higher loan rates before anything is signed, and borrows less than the maximum.

If it's a loan, isn't that just debt?

Yes. The money is tax-efficient because it is borrowed, and borrowed money has to be serviced or repaid. In this structure the death benefit is what repays it, so what your family receives is the death benefit less the loan. It can still be the cheaper way to get money out of a corporation, but it should be compared honestly with simply paying a dividend.

Who it fits, and who it doesn't

A reasonable fit if

You already have, or are building, significant cash value in a policy
You have other retirement income and would use this as a supplement, not as the foundation
You're comfortable with debt and with a lender's conditions
You've seen the plan tested with lower dividends and higher interest rates

Probably not for you if

You'd depend on the loan for essential living costs
The policy is new and has little cash value
You dislike borrowing or want a guaranteed income
Leaving the largest possible death benefit matters most to you

Run your own numbers

Retained Earnings Opportunity Calculator. Estimate the yearly tax cost and opportunity cost of cash sitting idle in your corporation.

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Questions to ask your accountant

If I borrow personally against a corporate policy, what guarantee fee should I pay?
How does this compare, after tax, with taking a dividend of the same amount?
What happens if the lender won't renew?
How does the loan affect what my estate receives and the capital dividend account?

Related guides

Figures are current as of 2026 and are general information, not tax, legal or investment advice. Rules and rates change, and how they apply depends on your facts. Confirm anything here with your accountant before acting. Dundas Wealth is an insurance brokerage (Dundas Life Inc., FSRA #37628M). We are paid by the insurance carrier if and when a policy is placed.