Corporate-Owned Life Insurance: Where It Fits and Where It Doesn't

In short

Your corporation owns a permanent life insurance policy on you, pays the premiums and is the beneficiary.
Growth inside the policy isn't taxed each year and doesn't count toward the $50,000 passive income limit.
It suits money the corporation won't need for a long time. It's a poor fit for cash you'll need in the next few years.

How it works

The corporation buys a permanent policy (usually participating whole life) on the owner's life. The corporation pays the premiums and receives the death benefit.

Premiums are paid with corporate dollars. Money in the corporation has been taxed at the corporate rate, which is lower than your personal rate. Premiums are generally not deductible.
Growth inside the policy is sheltered. As long as the policy stays within the limits set by the Income Tax Act (an “exempt” policy), its cash value grows without annual tax and isn't counted as passive investment income.
The death benefit comes in tax-free. The corporation receives it tax-free, and most of it can then be paid to your family through the capital dividend account.

A simple example

An owner has $600,000 of retained earnings in GICs and bond funds. The interest is taxed at about 50% in the corporation each year, and it pushes the corporation toward the $50,000 passive income limit.

She moves $60,000 a year for ten years into a corporate-owned policy. That money stops producing taxable investment income. The cash value builds inside the policy, and the death benefit is there to cover the tax her estate will owe. The rest of her portfolio stays invested as before.

This is an illustration, not a projection. Actual values depend on age, health, the insurer and the policy design.

The trade-offs

Early cash values are low. In the first several years the cash value is usually less than the premiums paid. It is a long-term structure.
Dividends aren't guaranteed. A participating policy has a guaranteed part and a dividend part. Dividends have been paid for a long time by the major insurers, but they can go down.
It's a commitment. Stopping premiums early can leave you worse off than if you had never started.
It sits inside the corporation. That can affect the tests for the lifetime capital gains exemption on a sale, and the policy is a corporate asset. Your accountant should look at where the policy is held.

Is this just a fancy way to sell life insurance?

Insurance is the tool, so the question is fair. We're a brokerage, and we're paid by the insurer if a policy is placed. That's why the fit matters: this works when you have a real need for coverage and money that can stay put for a decade or more. When either is missing, the honest answer is not to do it.

Who it fits, and who it doesn't

A reasonable fit if

You have retained earnings the business won't need for 10 years or more
Corporate cash flow is steady enough to fund premiums every year
Your estate will owe tax on the corporation, or you need coverage anyway
You're in reasonable health

Probably not for you if

You'll need the cash within a few years, for a purchase or an expansion
Revenue swings a lot from year to year
You have no need for life insurance and no estate tax to fund
You'd be funding premiums by borrowing or by starving the business

Run your own numbers

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

Open the calculator

Questions to ask your accountant

Is my passive income close to $50,000, and what does it cost me if I cross it?
Should a policy be owned by my operating company or a holding company?
How would a policy affect the lifetime capital gains exemption if I sell?
What would my estate owe on my shares today?

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.