Tax Benefits of Life Insurance for Business Owners

Allan Madan, CA
 Aug 26, 2014

There are many benefits that a corporation can gain from getting life insurance. It provides lump sum cash for the family members of the deceased. Another benefit is that it can also be used to protect profits from investments from tax.


There are two main tax benefits of life insurance. First life insurance provides for a lump sum cash payout to the family members of the deceased business owner. The cash payout is not subject to taxation. Alternatively the cash payout can be paid tax-free to a corporation. The corporation then pays a tax free dividend to the estate of the deceased business owner. Secondly, a life insurance policy can be used to shelter profits and gains on investments from tax. You see, a life insurance policy can be used to purchase investments like stocks, bonds and mutual funds. The income and gains generated by those investments are not taxed.

So here’s the tip, if you are incorporated, have your corporation pay for the life insurance premiums. While life insurance premiums are generally non-deductible, they are being paid from the corporation’s profits as oppose from your personal after-tax dollars.


The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.

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