Tax-Efficient Asset Class: Corporate Owned Life Insurance (COLI)

Laura Fitzsimons
Sep 5
3 min read

By Laura Fitzsimons

Corporate Owned Life Insurance (COLI) is a powerful, tax-advantaged strategy for business owners and incorporated professionals who want to protect their company, preserve wealth, and create long-term financial security for themselves and their families. Unlike traditional personal life insurance policies, COLI is designed to maximize the benefits of corporate structures while reducing overall tax burdens.

1. Cost Efficiency: Corporate vs. Personal Funding

The most immediate advantage of COLI is the difference in funding.

A personal life insurance policy is paid with after-tax personal income.
Corporate owned life insurance premiums, however, are paid with after-tax corporate dollars.

For a small business owner:

Corporate rate: 87.8% after-tax dollars
Personal rate: 46.47% after-tax dollars

For a larger corporation:

Corporate rate: 73.5% after-tax dollars
Personal rate: 46.47% after-tax dollars

This means premiums are significantly more cost-effective when paid through the corporation, making COLI an efficient way to protect your business and your family.

2. Tax-Free Death Benefit to the Corporation

On the death of the insured shareholder, the life insurance death benefit is paid tax-free to the corporation. This amount can then be credited to the Capital Dividend Account (CDA) and distributed to shareholders or family members with little or no personal tax. This ensures your heirs or business partners receive funds efficiently and tax-effectively.

3. Access to Cash Value and Financing Options

COLI policies can be structured with overfunded premiums to build up a cash value component. This cash value can:

Be used as collateral for business loans, giving owners access to working capital without liquidating other assets.
Provide a tax-advantaged income stream in retirement, supplementing personal savings.

This makes corporate owned policies not only a protection tool but also a wealth-building asset class.

4. Estate Planning and Tax Minimization

One of the most overlooked benefits of COLI is its role in estate planning. On the last death of you and your spouse, shares of your corporation are deemed disposed, creating a significant estate tax liability. A properly structured corporate owned policy helps offset or reduce this tax burden, protecting the value of your company for the next generation.

5. Leveraging COLI for Intergenerational Wealth

When paired with strategic leverage and proactive financial planning, COLI can magnify corporate wealth, ensuring that assets transition smoothly across generations. This protects your family’s lifestyle and preserves the company’s legacy for decades to come.

Why Our Clients Use COLI

At Lifecycle Wealth, our approach is to provide clients with adequate protection today while maximizing the strategic use of their policy over a lifetime. Corporate owned life insurance is not just about protection—it’s about creating a tax-efficient financial strategy that leverages your corporation to fund long-term goals.

Next Steps

If you are a business owner, incorporated professional, or high-net-worth individual, exploring COLI may be one of the most impactful financial strategies available to you.

For more information or to schedule a personalized consultation, contact:

Laura Fitzimons ︱ 416-576-6277 ︱ laura@lifecyclewealth.com

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.