Should physicians own life insurance personally or through a corporation?
The ownership decision is not simply a comparison of premium payments. It affects control, beneficiaries, corporate cash flow and what happens when an insured person dies.
Start with the purpose of the coverage
Is the insurance intended to replace family income, fund a shareholder buyout, protect a practice loan or provide estate liquidity? A policy purchased to meet a corporate obligation may warrant a different owner and beneficiary arrangement from one intended to protect dependants.
Personal ownership: clarity and control
Personally owned coverage may be straightforward when the goal is to provide proceeds directly to family members. The policyholder generally controls beneficiary designations and changes, subject to policy and legal restrictions. Premiums are typically paid using personal after-tax resources, and the suitability of the arrangement depends on the family's broader plan.
Corporate ownership: potential benefits and complexity
A corporation may have access to cash to fund premiums, and corporate-owned life insurance can be relevant to business succession or shareholder arrangements. However, the tax consequences depend on policy structure, ownership, beneficiary designations and the corporation's circumstances. The capital dividend account may be relevant to certain corporate life insurance death benefits, but calculations and distribution requirements are technical and should be confirmed by a Canadian tax adviser. Corporate ownership also introduces questions about control, creditor exposure, corporate reorganizations and extracting value for family beneficiaries.
Questions worth asking
- Who needs the death benefit, and who should control the policy?
- Will the policy support family needs, business obligations or both?
- What happens if the practice is sold, shares are reorganized or shareholders change?
- How do premium funding, tax treatment and beneficiary arrangements compare?
- What are the consequences of changing ownership after a policy is issued?
Takeaway: Neither ownership structure is automatically superior. Have a licensed insurance advisor, accountant and, where needed, corporate lawyer review the proposed arrangement before implementation.