Life insurance held by the shareholder or by the company– Get a quote online

A company can be the owner and beneficiary of a life insurance policy, which allows it to pay the premiums associated with that policy and to receive the life insurance proceeds on the death of the shareholder.

There are also other reasons for taking out or transferring a life insurance policy in the name of the company:

  • Payment of insurance premiums with funds taxed at corporate rates. The company generally pays a lower tax rate than the shareholder, so requires less funds than if the shareholder owns the policy.
  • In certain products, the Company may invest in the insurance policy free of tax on its future investment income generated by the life insurance policy. However, you should know that there are limits that can be invested in this type of contract.

However, there are some things to consider before taking such a step. These elements are:

  • Loss of protection against creditors in the event of company bankruptcy since the contract belongs to the company.
  • Possibility of forfeiting the capital gains exemption on the sale of company shares under certain conditions.
  • The company must be the beneficiary of the contract, which can be complex to manage upon the death of the shareholder for the transfer of sums of money to the heirs.
  • Sale of shares of a company.

In addition, we cannot ignore new legislative changes concerning:

  • The transfer of an insurance policy from a shareholder to a company as of March 22, 2016.
  • The new rule concerning the subscription of a so-called “permanent” insurance policy by a company from 1er January 2017 and the impacts on the possibility of investing in this policy to generate tax-free investment income.

You will find more explanation of the first point in the article dealing with the budget, on page 4 of this edition of the BVA +. As for the second point, you should contact your advisers in order to obtain more information and to know the impacts, for you, of this legislative change.

As we see, owning or transferring life insurance policies in a company can be complex and it is important to be accompanied by financial and tax advisers in decision making. It is also important that advisers analyze the full range of shareholders' insurance needs.

If you have any questions on this subject, BVA professionals can guide you from a tax point of view and others, for an advantageous approach for you and your company.

Daniel Fontaine, CPA auditor, CA, Partner
Director of the Lévis office