Corporate-owned life insurance for incorporated professionals

Why ownership changes everything

For an incorporated professional or business owner, the question isn't only "which policy?" but "who owns it?" Paying premiums personally uses after-tax income. Paying them through the corporation uses corporate dollars taxed at a lower rate — so the same coverage can be substantially cheaper to fund inside the company, and the death benefit can flow out to your estate tax-free through the CDA.

The CDA, worked through

The Capital Dividend Account is a notional account that lets a private corporation pay certain amounts to shareholders tax-free. When a corporate-owned policy pays a death benefit, the amount exceeding the policy's adjusted cost basis (ACB) is credited to the CDA.

The remaining ACB portion can be paid as a taxable dividend. The net effect: a large, largely tax-free transfer to your heirs, funded with cheaper corporate dollars.

Common uses

• Buy-sell funding — insurance funds the purchase of a deceased shareholder's shares so the survivors keep control and the family gets fair value. Structures include criss-cross, promissory-note, and share-redemption methods.
• Key-person coverage — protects the company against the loss of an owner or essential employee.
• Estate equalization — balances an estate when one heir inherits the business and another needs equivalent value.
• Tax-efficient wealth transfer — for professionals with surplus corporate cash and permanent coverage needs.

The trade-offs and traps

• Corporation owns and controls the policy — with creditor-exposure and structuring implications.
• Shareholder-benefit trap — if the corporation pays premiums but the beneficiary is personal (or ownership and beneficiary are misaligned), CRA can assess a taxable shareholder benefit. Structure it correctly.
• Passive-income rules — corporate investments can affect access to the small-business deduction; coordinate with your accountant.
• Complexity — ownership, beneficiary, and CDA mechanics must be set up precisely.

This is a "get a tax accountant, an insurance specialist, and often a lawyer" decision — not a DIY one. We explain the mechanics; your advisors implement them.

Your checklist

1. Confirm you have a genuine corporate need (buy-sell, key-person, estate, surplus cash).
2. Model corporate vs personal funding cost with your accountant.
3. Get the ownership and beneficiary structure right to avoid a shareholder benefit.
4. Understand the ACB / CDA mechanics for your policy.
5. Coordinate with your estate plan and passive-income position.