When Does Corporate-Owned Participating Whole Life Insurance Make Sense?

When Should You Consider It?

Participating whole life insurance held inside a corporation tends to be worth exploring when several of the following are true for you:

• You're a significant shareholder in a Canadian Controlled Private Corporation (CCPC)
• You're age 40 or older and in good health
• Your corporation has excess annual cash flow or investment assets not currently needed for the business — typically after at least five years in operation
• You want to maximize your estate and transfer assets in a tax-efficient way
• You're looking for stable, predictable asset growth as part of a diversified portfolio

A Quick Suitability Check

The more of these that apply, the stronger the case for this strategy:

• Do you have a business succession plan in place?
• Are you looking to reduce tax on corporate investment income?
• Do you want to pass corporate assets to a beneficiary?
• Do you have a corporate life insurance need?
• Do you hold taxable passive investment assets?
• Do you hold corporate investments with a deferred capital gain?
• Do you want a certain amount of estate value guaranteed?

Traditional Investments vs. Participating Whole Life Insurance

Traditional investments, while living: Interest, dividends, and realized capital gains are all taxed annually. Passive investment income is taxed at the highest corporate rate, with no small business deduction available on that income.

Traditional investments, at death: Tax is payable on deferred capital gains, and again on the transfer of assets to the shareholder's estate.

Participating whole life insurance, while living: Policy earnings grow tax-exempt up to government-prescribed limits.

Participating whole life insurance, at death: All policy proceeds are paid to the corporation tax-free, with no deferred capital gains. The death benefit, less the policy's adjusted cost basis, can then move to the shareholder's estate tax-free through the corporation's notional Capital Dividend Account.

Life Insurance as Wealth Protection

Total wealth is made up of two components: human capital and financial capital. Participating whole life insurance is one of the few tools that can protect both — insuring the human capital your business depends on, while building a tax-advantaged asset that strengthens the balance sheet.

If this sounds like your situation, it's worth a conversation about whether a corporate-owned participating whole life policy belongs in your planning.