Practice area
Life insurance for business owners
A private company is usually the largest asset a family owns and the hardest one to transfer. It cannot be split between children, it is illiquid exactly when the estate needs cash, and its value often dies with the person who built it. Insurance does not solve that on its own — it funds the solution your lawyer and accountant design.
Four problems, in rough order of urgency
The tax bill nobody has cash for
On death you are deemed to dispose of your shares at fair market value. If you built the company from nothing, the gain is close to the whole value of it, and half of that gain is taxable on your terminal return at top marginal rates. The estate owes real money on a date it did not choose, secured against an asset it cannot easily sell. Heirs sell the business at a discount, or borrow against it, or lose it. The tax at death calculator gives you the rough size of the problem.
The partner you did not choose
If a shareholder dies without a funded agreement in place, their shares go to their estate, and the surviving shareholders find themselves in business with a spouse or an adult child who may want out, may want in, or may want the company sold. A shareholders' agreement decides what happens. Insurance is what makes it possible to actually do it, because the obligation to buy those shares arrives without warning and the money has to exist that day.
The person the business cannot replace
Key person coverage is owned and paid for by the company on the life of someone whose loss would measurably damage it — the person holding the client relationships, the technical knowledge, or the lender's confidence. The proceeds buy the company time to recruit, to reassure customers, and to survive the revenue hit. Lenders and investors increasingly ask whether it is in place.
The children who are not all in the business
One child runs the company. The others do not. Leaving the shares equally makes the operator answerable to siblings; leaving them to the operator alone disinherits the rest. A life policy can create the liquidity to equalise, so that the operating child receives the business and the others receive an equivalent amount that does not depend on the business being sold.
Personal or corporate ownership
Who owns the policy changes the arithmetic considerably, and it is a decision to make with your accountant before the application rather than after the policy is issued. Broadly:
| Personally owned | Corporately owned | |
|---|---|---|
| Premiums paid with | After-tax personal dollars | Corporate dollars, generally taxed at a lower rate on the way in |
| Death benefit goes to | A validly named beneficiary, generally outside the estate and normally not subject to Estate Administration Tax, depending on the contract and applicable law | The corporation; additional tax and legal steps may be required before funds reach the family |
| Getting it to the family | Generally paid directly to the validly named beneficiary, subject to the policy and applicable law | The death benefit may create a capital dividend account credit, generally reduced by the policy's adjusted cost basis. An accountant must confirm the amount and whether a capital dividend can be paid tax-free. |
| Exposed to corporate creditors | Depends on ownership, beneficiary designation and applicable creditor-protection rules | Potentially — the policy is a corporate asset; obtain legal and accounting advice |
| Main trap | Premiums cost more in pre-tax earnings | Ownership, beneficiary and payer must line up correctly, and a shareholder benefit can be assessed if they do not |
That table is a map, not a recommendation. The capital dividend account in particular has mechanics we are not licensed to advise on, and the right answer differs between an operating company, a holding company and a professional corporation. Your accountant decides this one.
Cross-purchase or corporate redemption
For a funded buy-sell there are two basic structures. In a cross-purchase, each shareholder owns a policy on the others and buys their shares directly. In a corporate redemption, the company owns the policies and buys back the shares of the deceased. The choice affects the adjusted cost base of the surviving shareholders' shares, the use of the capital dividend account, and how messy it gets with more than two or three owners. Both need a shareholders' agreement that actually matches the policies — the common failure is an agreement drafted years ago and coverage that no longer reflects the value of the company.
The business coverage estimator gives a rough figure for key person and buy-sell funding.
Business succession touches corporate law, shareholder agreements and tax rules that we are not licensed to advise on and do not pretend to be. What we do is fund the plan once your lawyer and accountant have built it. If you do not have either, we will tell you that before we talk about a policy, not after.
Every life insurance agent in Ontario is licensed by FSRA, and the register is public. Look up licence #23219192 on FSRA Licensing Link. Do this for us and for anyone else you speak to.
Start with a conversation.
Thirty minutes, no charge, no product pitch. Bring whatever you have — a will, a policy, a shoebox of paper, or nothing at all. You will leave knowing what is missing and what it takes to fix.
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