Understanding Corporate Life Insurance in Alberta
- patrick83738
- Oct 14
- 4 min read
Why Life Insurance Isn’t Just for Families
Most people think of life insurance as something you buy to protect your family — but it can also protect a business. For many Alberta corporations, life insurance is a smart financial tool that supports stability, growth, and long-term planning.
When a business owns life insurance, it’s called corporate-owned life insurance (or COLI). The company buys and pays for the policy, and the business — not the individual — is the beneficiary.
How Corporate Life Insurance Works
A corporation can take out a life insurance policy on an owner, a shareholder, or an important employee. The company pays the premiums using corporate dollars, which are usually taxed at lower rates than personal income.
If that person passes away, the insurance company pays a tax-free death benefit to the corporation. This payout can be used to replace lost income, pay off debts, or buy out a partner’s shares — all without draining the company’s cash flow.
Example 1: Protecting a Key Person
Imagine a Calgary construction company. They have one lead estimator, Sarah, who manages bids for every major project. If something happened to her, the company could lose clients and revenue while searching for a replacement.
So the company purchases a key person life insurance policy on Sarah. If she passes away unexpectedly, the death benefit helps cover training costs for a new estimator and offsets lost business while the team adjusts.
In short: Key person insurance helps a business survive when someone essential to operations is suddenly gone.
Read more: Canada Life – Business Life Insurance
Example 2: Funding a Buy-Sell Agreement
Now, picture two Alberta business partners — Mark and Anita — who co-own a consulting company. Each holds 50% of the company shares. They have an agreement that if one of them dies, the other will buy their shares.
Without planning, the surviving partner might need to take out a costly loan or even sell company assets. Instead, they set up a buy-sell agreement and fund it with corporate life insurance.
If Mark passes away, the insurance pays the company a death benefit. The company uses that money to buy Mark’s shares from his estate — keeping ownership and control within the business.
In short: Life insurance makes succession planning smoother, keeping ownership stable and fair.
Example 3: Paying Down Business Debt
A local restaurant group recently expanded and took out a large business loan. The owner, Janet, is the personal guarantor.
If Janet were to pass away, the business could struggle to keep up with payments — putting staff and suppliers at risk. A corporate-owned term life policy on Janet ensures that if she dies, the payout can cover the loan and protect everyone’s livelihood.
In short: Life insurance gives lenders, investors, and employees confidence that the business can keep running — even in tough times.
Example 4: Building Cash Value and Growing Assets
Some Alberta corporations use permanent life insurance as a long-term asset. The policy’s cash value grows tax-sheltered inside the company and can be accessed later.
Let’s say an engineering company wants to build a reserve fund for future expansion. They buy a permanent life policy on the owner, which grows each year. Over time, the company can borrow against this value or use it as collateral for new projects.
In short: Corporate life insurance can be part of a balanced business investment strategy — not just a safety net.
Key Benefits of Corporate Life Insurance
Benefit | Description |
Tax Efficiency | Premiums are paid with corporate dollars, and the death benefit is usually tax-free. |
Business Continuity | Protects the company from financial loss if a key person or owner dies. |
Shareholder Protection | Helps fund buy-sell agreements, so surviving owners can buy out the deceased’s shares. |
Creditor Confidence | Strengthens relationships with banks and investors by reducing financial risk. |
Cash Value Growth | Some policies build value that can be borrowed against for expansion or emergencies. |
Important Considerations
While corporate life insurance is powerful, it should be carefully planned:
Premiums are not always tax-deductible.
Policy ownership and beneficiary details matter for tax and legal reasons.
A qualified advisor, accountant, and lawyer should work together to design the plan.
Why It’s Especially Valuable in Alberta
Alberta’s lower corporate tax rates make it more attractive to fund premiums through a company.
Many businesses here are owner-managed, meaning the owner and the business are deeply tied — making protection even more important.
Corporate life insurance fits naturally with Alberta’s entrepreneurial spirit, offering security while freeing up cash flow for growth.
Talk to SAFE CREST INSURANCE INC.
At SAFE CREST INSURANCE INC., we help Alberta business owners understand the right way to structure and use corporate life insurance — from key person coverage to buy-sell funding and cash-value growth strategies.
We’ll walk you through every step so your company can stay protected, confident, and positioned for the future.
Comments