What Is Corporate-Owned Life Insurance and Who Is It For?

Corporate-owned life insurance (COLI) is a permanent life insurance policy owned by an incorporated business on the life of an owner or key person, where the corporation pays the premiums and is the beneficiary. It is designed for incorporated business owners and professionals — doctors, dentists, lawyers, accountants — who want to transfer corporate wealth to the next generation as tax-efficiently as possible and protect the business against the loss of a key person.

How it works

The corporation pays the premium using lower-taxed corporate dollars (rather than personally taxed income). When the insured passes away, the death benefit pays out to the corporation tax-free. A portion of that payout is added to the corporation's Capital Dividend Account (CDA), which allows the after-tax amount to flow to your heirs largely tax-free. This preserves more estate value by offsetting the tax burden on your estate — including capital gains taxes triggered on death.

Who it is for

• Incorporated professionals with surplus cash inside the corporation that they don't need personally.
• Business owners facing a large tax bill on death (capital gains on shares, real estate, or a cottage).
• Partners who need to fund a buy-sell agreement so the surviving owner can buy out the deceased's shares.
• Companies that need key person protection to satisfy lenders or investors.

The tax advantage in plain terms

Paying a premium from a corporation that is taxed at a lower small- business rate is cheaper than paying the same premium from personally taxed income. The death benefit lands in the company tax-free, and the CDA mechanism lets that money reach your family largely tax-free. The result: more wealth to your heirs and less lost to tax — which is why insurance planning today preserves more estate value by offsetting the tax burden on the estate.

When it may not be the right fit

COLI is not for unincorporated individuals or sole proprietors, and it only makes sense when there is genuine surplus corporate cash and a real need (succession, estate liquidity, key person). It should always be structured alongside your accountant and lawyer so it fits your corporate and estate plan — not layered on top of it.

If you own an incorporated business or professional practice in Nova Scotia, Ontario, or New Brunswick, I can model whether corporate-owned life insurance makes sense for your structure — working alongside your accountant. Book a free consultation to run the numbers.