Corporate Life Insurance: Time to Pressure-Test Your Coverage

The start of a new year is a good time to stress-test whether your policies still match your situation.

By Laura Fitzsimons

If you have corporate-owned life insurance in place, you've already addressed something many business owners overlook. But when did you last pressure-test your coverage against your current situation?

It's easy to assume that once a policy is in place, the work is done. After all, premiums are being paid, the coverage exists, and it's one less thing to think about. But corporate-owned life insurance isn't a "set it and forget it" strategy. It's a living piece of your business and estate plan—one that should evolve as your circumstances change.

Policies that made sense a few years ago don't always keep pace. Businesses appreciate. Structures evolve. Tax rules shift. Key relationships change. And gaps that weren't there before can quietly emerge—often without anyone noticing until it's too late.

The question isn't whether your policy was set up correctly. It's whether it still fits.

Four Questions Worth Asking

1. Is your policy working for you now—or only later?

Not all corporate-owned life insurance is created equal. Some structures provide flexibility and access to capital during your lifetime—allowing you to leverage cash value for business opportunities, bridge financing, or retirement income. Others lock everything up until death, offering no liquidity along the way.

The difference often comes down to how the policy was designed from the start: the type of policy selected, how it was funded, and whether it was structured with lifetime access in mind. If your circumstances have changed—if you're now thinking about succession, semi-retirement, or unlocking capital—it's worth asking whether your current policy supports those goals or works against them.

2. Do the numbers still work?

Business valuations rarely stay static. If your company has appreciated significantly since your policy was put in place, your existing coverage may no longer match your actual exposure.

Consider a common scenario: a buy-sell agreement funded with life insurance. At the time the policy was purchased, a $1 million death benefit matched the value of the business interest being covered. But five years later, that interest is now worth $2 million. The policy hasn't changed—but the obligation has. That $1 million gap doesn't disappear. It becomes a problem for surviving shareholders, surviving family members, or both. In the worst cases, it forces a fire sale, outside financing, or prolonged business disruption at exactly the wrong moment.

Regular valuation updates—paired with corresponding insurance reviews—can prevent this kind of mismatch from catching you off guard.

3. Has your corporate structure evolved?

Businesses grow, and with that growth often comes structural change. New shareholders. A new holding company. An estate freeze. A family trust. A reorganization for creditor protection or tax efficiency. Each of these changes can create misalignment between your insurance policies and your current corporate reality.

For example, if a policy is owned by an operating company but your shares are now held through a holding company, the intended flow of funds on death may no longer work as planned. Or if you've added shareholders since the original buy-sell was drafted, those new parties may not be properly covered—or may be inadvertently excluded from the benefits.

Even subtle changes can have significant consequences. The structure that made sense five years ago may now be working against your goals.

4. Have you factored in the 66.67% inclusion rate?

With capital gains now taxed at a higher inclusion rate above $250,000, the math has shifted for many business owners. If your estate plan was built around older assumptions, it may no longer deliver the outcome you're expecting.

This is especially relevant for business owners planning to use life insurance to offset capital gains tax on death or to fund a tax liability triggered by a deemed disposition. If the anticipated tax bill is now higher than originally projected, your coverage may fall short. And if you haven't revisited the numbers recently, you may not know until it's too late to adjust.

What a Generalist Advisor May Not Flag

Corporate-owned life insurance sits at the intersection of tax, estate, and business planning. It's not a standalone product—it's part of a larger structure. And when one piece of that structure changes, the others should be re-examined.

But that kind of integrated review isn't always what you get.

Many advisors—through no fault of their own—focus on their lane. An investment advisor manages the portfolio. An insurance advisor handles the policy. An accountant focuses on compliance and tax filings. Each may be excellent in their area. But without someone connecting the dots across all three, important issues can slip through the cracks.

The result? Policies that were set up correctly at the time, but haven't been stress-tested since. Coverage that no longer matches exposure. Structures that create unintended tax consequences or liquidity problems. Opportunities that were available years ago but weren't acted on—and may no longer be available today.

It's not about blame. It's about recognizing that complex planning requires coordinated oversight—and that oversight doesn't happen automatically.

When Was Your Last Comprehensive Review?

If it's been more than two years since your corporate-owned life insurance was reviewed—or if any of the above gives you pause—a second opinion may be worth your time.

Not to redo everything. Not to start from scratch. Just to verify that what's in place still works the way you think it does. To confirm that your coverage matches your exposure, that your structure still aligns with your goals, and that you're not carrying risk you haven't accounted for.

A proper review looks at the full picture: the policy itself, the corporate structure around it, the tax implications, and how it all fits into your broader estate and succession plan. It asks the hard questions before circumstances force them.

Because the best time to find a gap is before it becomes a problem.

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This publication contains the opinion of the writer. The information contained herein was obtained from sources believed to be reliable, but no representation or warranty, express or implied, is made by the writer, Mandeville or any other person as to its accuracy, completeness or correctness. This publication is not an offer to sell or a solicitation of an offer to buy any securities. The information in this publication is intended for informational purposes only and is not intended to constitute investment, financial, legal, tax or accounting advice. Many factors unknown to us may affect the applicability of any statement or comment made in this publication to your particular circumstances. Hence, you should not rely on the information in this publication for investment, financial, legal tax or accounting advice. You should consult your financial advisor or other professionals before acting on any information in this communication.