Business-owned permanent life insurance

Protecting Your Business and Its People.

Build security today — safeguard your company’s future.

What Is Company-Owned Permanent Life Insurance?

Company-owned permanent life insurance (sometimes called Corporate Life Insurance, Business-Owned Life Insurance, COLI) is a life insurance policy owned by a corporation rather than an individual.

The insured person might be an owner, shareholder, or key employee. Because it’s a permanent policy (unlike term life), it lasts for the lifetime of the insured (as long as premiums are paid) and accumulates cash value.

Key characteristics include:

Lifetime insurance protection (death benefit guaranteed, depending on product)
A savings / investment component (cash surrender value) that builds up inside the policy
Owned and premium‐paid by the company, with the company usually named beneficiary
Often used for business, tax, estate, continuity, or succession planning purposes

Why Businesses Use Company-Owned Permanent Life Insurance

Here are some common reasons business owners choose this structure:

Key Person Protection
To protect the business if a key owner, partner, or vital employee dies unexpectedly. The death benefit helps cover lost profits, recruitment costs, or debt.
Buy-Sell / Succession Funding
To ensure that there is liquidity to fund buy-sell agreements so that ownership interests can be purchased smoothly after an owner’s death.
Estate Equalization / Family Succession
If a business owner wants to leave the business to one family member but compensate others. The insurance death benefit provides cash for those not inheriting the business.
Tax & Capital Dividend Account (CDA) Advantages
The death benefit (minus certain adjusted cost basis) can be credited to a company’s Capital Dividend Account, allowing shareholders to receive certain amounts tax-free.
Cash Value Accumulation & Business Flexibility
The policy builds cash value over time that the business can borrow against or use as collateral, or deploy in other ways while the insured is alive.

Types of Permanent Life Insurance Products Used in Company-Owned Situations

You’ll often see these types:

Whole Life / Participating Life

Universal Life

Advantages & Benefits (What Makes It Attractive)

Lower After-Tax Cost of Premiums
Because the company typically has a lower tax rate than a high-income individual, paying premiums via the company can reduce the after-tax outlay.
Tax-Free Death Benefit
On death, the benefit paid to the corporation is generally tax-free, and then may be paid onwards to beneficiaries (shareholders/family) often via the CDA, with favourable treatment.
Capital Dividend Account (CDA)
The excess of death proceeds over the policy’s adjusted cost basis can be credited to the CDA, which allows tax-free distributions to shareholders.
Creditor Protection
Policies owned by a corporation are generally protected from creditors of individual shareholders. However, protection has limits and depends on structuring.
Estate Planning & Liquidity
Provides liquidity on death to pay taxes, debts, or to buy out partners; helps avoid being forced to sell assets quickly.

Disadvantages & Things to Watch Out For

Premiums are NOT Tax-Deductible
in most cases. The company pays after-tax dollars to pay premiums.
Adjusted Cost Base (ACB) Complexity
The policy’s adjusted cost basis affects how much of death proceeds will count towards the CDA and how much might be taxable.
Corporate Ownership Structure & Legal-Tax Rules Matter
How the policy is owned, who is beneficiary, who pays premiums—all can affect tax or legal consequences. If structured incorrectly, outcomes can be less favourable.
Cash Value vs Opportunity Cost
The cash accumulation component often comes with conservative investment assumptions and fees; sometimes other investment options might offer higher growth — but with more risk.
Creditor or Bankruptcy Risk
While there is some protection, the corporate policy may be considered an asset of the company; in some situations creditors or courts may challenge protections.
Cost vs Benefit Over Time
The premiums for permanent policies are significantly higher than for term insurance; for simpler protection needs, term policies may be more efficient.

Example Scenarios

Two business partners each take a company-owned permanent life policy on the other. Upon death, proceeds allow the surviving partner to buy out the deceased partner’s shares without crippling the business financially.

A business owner who plans to leave the business to one child but wants to ensure other children receive equal value. The company gets permanent life insurance, death benefit goes into estate, or to non-business heirs, ensuring fairness.

A company’s success hinges on a specific executive or creator. The company uses a permanent life policy so if that person dies, death benefit covers business loss, replacement costs, and helps preserve company value.

During the business owner’s lifetime, the policy’s accumulated cash value can be accessed (loaned or borrowed against) for expansion, cover emergencies, or cash flow, so long as doing so does not endanger keeping the policy active.

Can I have a company own the life policy on an employee or shareholder?

Yes, as long as there is “insurable interest” (i.e. the company would suffer financial loss if the person died).

The company pays premiums, owns the policy, and is beneficiary.

Is the death benefit taxable income for the company?

Usually, the death benefit received by the company is tax-free, but when distributing to shareholders (especially via CDA) or in other structures, other tax rules apply.

Also, the ACB of the policy matters.

Can the business access the cash value while the insured is alive?

Yes, many permanent policies allow loans or withdrawals based on accumulated cash value.

That gives flexibility, but must be managed carefully so policy stays in force.

What happens if I leave the company or sell my shares?

Changing ownership or roles may require reviewing the life insurance policy; transfers or sales can have tax implications. Policies may need to be restructured or ownership changed.

It’s best to plan this ahead.

How does the policy impact the company’s or owner’s taxes?

Some of the death benefit minus the policy’s adjusted cost basis may go to the CDA and be paid out tax-free to shareholders.

Also, premium payments are not deductible, and if the policy builds cash value, changes or withdrawals may trigger tax considerations.

What Affects Premiums & Terms

These are some of the variables that will impact how much a company-owned permanent policy costs and its suitability:

Insured’s age, health, lifestyle
Size of death benefit (how large a benefit needed)
Type of permanent policy (whole/participating vs universal; investment options)
Premium payment schedule; flexibility (e.g. level vs increasing premiums)
Cash value growth assumptions; interest / investment crediting rates
Fees / commissions / policy charges
The company’s jurisdiction, tax rate, legal form, structure of ownership / beneficiary / premium-payor

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