Why Smart Business Owners Use Life Insurance as a Strategic Asset

By Laura Fitzsimons

Many entrepreneurs understand that life insurance plays a key role in protecting their business in the event of their passing. It’s a tool often used for succession planning, debt coverage, or buying out partners. But fewer realize the living benefits life insurance can offer — especially when it comes to enhancing access to capital and strengthening a company’s financial foundation.

Life Insurance as a Capital Access Tool

Access to cash is critical for business growth. According to a recent Goldman Sachs survey, 77% of small business owners are concerned about securing the funding they need to operate and expand. This is where permanent corporate-owned life insurance becomes a powerful asset.

Unlike term insurance, permanent life insurance builds Cash Surrender Value (CSV) over time — a liquid asset that appears on your balance sheet and can be borrowed against at attractive rates. This can support your business through working capital shortfalls, seize new investment opportunities, or serve as a buffer during tough times.

3 Reasons Why Life Insurance Is a High-Value Asset

1. Safe and Diversified Growth

The cash value within a permanent life insurance policy is typically invested in long-term, diversified portfolios managed by major insurers. These portfolios use smoothing strategies that help minimize the impact of market volatility, offering stable and predictable returns.

2. Tax-Deferred Accumulation

All growth inside your life insurance policy is tax-deferred. This means dividends and capital gains compound without triggering annual taxes. Better yet, these returns are not included in your Adjusted Aggregate Investment Income (AAII)calculation, allowing more of your business income to qualify for the small business tax rate.

3. Long-Term Value Creation

Over time, the policy’s cash value will likely exceed the premiums paid, resulting in a net asset on your financial statements. This improves your company’s equity position and financial ratios, making it easier to attract financing or investment.

Real-World Business Impact: A Case Study

Sun Life’s CPA whitepaper presented a compelling 20-year corporate insurance case study. A business pays $200,000 in annual premiums for 10 years ($2 million total). After 10 years, the policy has a cash value of $2.7 million. After 20 years — with no additional premiums — the cash value grows to $4.7 million.

That’s a $2.7 million net gain that strengthens your business’s financial profile.

Be Your Own Banker: Leveraging Life Insurance for Liquidity

One of the most overlooked strategies is leveraging your policy for funding. Major Canadian insurers allow business owners to borrow up to 90–100% of the CSV, often at more favorable rates than traditional loans or even real estate-backed financing.

This approach — often referred to as "becoming your own bank" — allows you to meet capital needs without jumping through the hoops of traditional lenders.

Entrepreneurs Who Used Life Insurance to Fund Growth

History is full of visionaries who used life insurance as a financial springboard:

• Walt Disney funded the launch of Disneyland using his whole life policy after being turned down by banks.

• James Cash Penney, founder of JCPenney, relied on life insurance to make payroll during the 1929 financial crisis.

• Ray Kroc, who expanded McDonald’s globally, also tapped into his policy to cover crucial business expenses.

When traditional funding sources aren’t an option, permanent life insurance can provide the liquidity you need.

Capital Access Is Even Tougher in Canada

Canadian business owners face unique challenges in accessing growth capital. Fewer than 2% of medium-sized Canadian firms ever scale into large companies. In contrast, 47% of U.S. workers are employed by small and midsize businesses — in Canada, that number is 90%.

According to the Canadian Venture Capital and Private Equity Association (CVCA), 82% of investors are concerned about their portfolio companies securing adequate financing in the near future. That’s why now, more than ever, business owners must explore innovative strategies like life insurance-backed capital.

Secure the Future — and Your Financing

Whether you're funding a new opportunity or simply smoothing out cash flow, corporate-owned life insurance offers a compelling combination of safety, tax advantages, and liquidity. It’s not just about protection — it’s about positioning your company to thrive.

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.