What are the benefits of holding life insurance in a company?

There are several benefits to owning life insurance in a corporation:

  • The main benefit is cost. Life insurance premiums paid by a corporation are generally not tax deductible. However it is generally cheaper to have a corporation pay the premiums than to withdraw funds from a corporation and to pay the premiums personally.

  • When a corporation receives life insurance proceeds upon a person's death these amounts are generally received non-taxable to the beneficiary corporation.

  • The life insurance proceeds can generally be withdrawn tax-free from the company. This is achieved by making use of the Capital Dividend Account (CDA) mechanism to declare a capital dividend, which will be received tax-free by shareholders resident in Canada for most or all of the insurance proceeds.

  • In addition, many shareholders prefer to spend corporate funds for life insurance premiums, and save personal dollars for other purposes.

  • Some individuals prefer having the life insurance in a company, which gives increased assurance that funds are available to pay required premiums and that these premiums are paid on a regular basis.

Notice: While corporate owned life insurance can make sense for certain situations, the rules can be complex and this route should not be taken without first consulting with a qualified tax adviser.

Please contact Jonathan Levy if you have any questions or comments.

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