There are three main uses of corporate-owned life insurance

1. defer taxes
2. reduce premium costs
3. provide shareholder dividends

Defer Taxes

• deposit excess corporate capital into policy, invest and later
  • withdraw
  • leverage, or
  • get tax-free death benefit —> Capital Dividend Account —> shareholders

Reduce Premium Costs

• insurance is purchased with after-tax dollars
• private corporations have lower tax rates on the Retained Earnings up to the Small Business Limit (e.g., 18.62%) then shareholders (e.g., 46.41%)
• so corporate-owned insurance requires fewer pretax dollars

Provide Shareholder Dividends

• flow death benefit tax-free to shareholders
• if sole shareholder, own policy inside corporation
  • death benefit —> corporation tax-free —> Capital Dividend Account —> estate of shareholder to cover final tax liabilities, etc

The Mechanics

Here is how life insurance can help in a corporate situation.

Why Corporate Ownership?

Life insurance premiums are not tax-deductible but the death benefit is tax-free regardless of who the beneficiary is.

When a corporation is the owner in beneficiary of a life insurance policy, there are no taxable benefits to you as a shareholder or owner. I