Protect your business while creating tax-free liquidity to help preserve more of your entire estate for your family.
“It’s a great feeling knowing my family will be OK financially when I pass away.” -Andy L., Ontario
Provides liquidity so your family isn't forced to sell business assets.
Creates tax-free dollars when your family may face significant estate taxes.
Helps more of your business and personal wealth reach your family.
Business life insurance is coverage designed to protect a business, its owners, and their families from financial problems created by the death of an owner or key person.
The policy may be personally or corporate-owned, depending on what the insurance is intended to accomplish. It can provide money for business succession, shareholder agreements, debts, estate taxes, or wealth transfer.
For incorporated business owners, permanent corporate-owned insurance can also provide significant tax and estate-planning advantages.
Business life insurance can protect against the loss of a key person, fund a buy-sell agreement, repay debt, support succession, or provide liquidity for estate taxes.
Term insurance is often appropriate for temporary risks, while permanent insurance is generally considered when the need will exist at death.
For incorporated business owners, permanent insurance can also accumulate value on a tax-advantaged basis and create significant new Capital Dividend Account (CDA) room at death.
This can allow most or potentially all of the insurance proceeds to flow out of the corporation tax-free and provide the family with cash to help pay taxes arising across the entire estate—not just the business.
Term insurance provides lower-cost coverage for a specific period and is commonly used for temporary business debts, key-person protection, or shareholder agreements.
Term 100 provides permanent lifetime insurance with generally level premiums, making it useful when the business has a permanent need for liquidity at death.
Universal life provides permanent insurance with a tax-advantaged investment component, giving the policy owner greater control over how additional policy values are invested.
Whole life provides permanent protection with guaranteed cash values, while participating policies can also earn dividends that may increase both cash value and the death benefit.
At SWPP we specialize in helping business owners, real estate investors, and families with complex estates to preserve their wealth.
| Business Need | How Insurance Can Help | Coverage Often Considered |
|---|---|---|
| Protect a key person | Provides funds following the death of an essential owner or employee | Term or permanent |
| Fund a buy-sell agreement | Helps surviving owners purchase the deceased owner's interest | Term or permanent |
| Cover business debt | Provides liquidity to repay eligible debts and protect business assets | Term |
| Support succession | Creates funds to help transfer or preserve the business | Permanent |
| Pay estate taxes | Provides liquidity that may help avoid forced asset sales | Permanent |
Policy costs, guarantees, cash values, and tax consequences depend on the specific policy and how the corporation structures and uses it. An Ontario business owner should obtain advice based on the corporation’s needs and financial circumstances.
Business life insurance becomes especially important when the death of an owner could leave the business or family facing significant taxes, debt, a shareholder buyout, or the forced sale of valuable assets.
It can be particularly valuable when much of your wealth is trapped inside a corporation while your estate will need substantial cash to pay taxes arising from both corporate and personally owned assets.
One of the biggest advantages of corporate-owned life insurance is often missed.
Life insurance doesn’t just provide money to protect the business. It can create significant new tax-free CDA room at exactly the time your family may face its largest tax bill.
Most or potentially all of the death benefit can then flow out of the corporation tax-free and provide liquidity to help pay taxes arising elsewhere in your estate, including personally owned real estate, investments, or other taxable assets.
This can prevent your family from having to sell valuable assets simply to raise the cash needed to pay the tax.
EXAMPLE
We worked with a business owner who had most of his wealth inside his corporation and initially believed his family could simply sell corporate investments to pay his projected $3.8 million estate tax bill.
Once we calculated the additional tax involved in extracting corporate money, approximately $7.3 million of corporate funds could be required to provide $3.8 million after tax.
We structured participating whole life insurance funded with $250,000 annually for 10 years, with a projected death benefit exceeding $7.8 million by year 10.
The insurance created the liquidity needed to fund his estate tax while preserving substantially more of the corporation and estate for his family. With the insurance instead of using $7.8 million of corporate money to fund the $3.8 million in taxes it cost them less that $2.5 million incorporate money.
This is a savings of $5.3 million of corporate assets. And, it would cost them even less if they used an IFA arrangement.
There is no single price for $1 million of business life insurance because premiums depend heavily on the insured person’s age, health, smoking status, policy type, and length of coverage. Term insurance can cost substantially less initially, while permanent insurance generally requires larger deposits but can provide lifetime coverage, cash values, tax-advantaged growth, and estate-planning benefits.
The amount should be based on the financial problem you are trying to solve rather than an arbitrary multiple of income or business value. We consider business debts, shareholder obligations, estate taxes, succession requirements, and existing liquidity, as well as how much you ultimately want your family to receive.
Yes. A Canadian corporation can own and pay the premiums for a life insurance policy and can also be named as its beneficiary. Premiums are generally not tax-deductible, although limited exceptions may apply in certain situations.
Life insurance can provide surviving shareholders with the money required to purchase a deceased owner’s shares rather than requiring them to use personal funds or drain cash from the business. It can also provide the deceased owner’s family with liquidity instead of leaving them with shares in a business they may not understand or want to operate.
Do you need life insurance? Get started with a zero-obligation life insurance and estate planning consultation today.
SWPP helps Ontario business owners use corporate-owned life insurance to protect their companies, manage future tax liabilities, and transfer more wealth to the next generation. During our 35 years experience we’ve helped hundreds of families protect millions of dollars from taxes.
At SWPP, we are licensed and recognized advisors. Our goal is to protect your family’s money and assets. We help families, business owners, and real estate investors do comprehensive estate planning in Ontario.
We’re focused on making sure you leave the most for your loved ones instead of giving your hard-earned assets to CRA.
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