Corporate vs Personal Insurance: What Makes Sense for You as a Business Owner?

Corporate vs Personal Insurance: What Makes Sense for You as a Business Owner?

If you’re incorporated, here’s the question you need to ask:
Should you own your life insurance policy personally — or should your corporation own it?

Both options can work. But depending on your goals — protection, tax planning, succession, or wealth extraction — one may be far more efficient than the other.

Let’s break down the differences, the tax implications, and when it makes sense to use both.

The Core Distinction

• Personally-Owned Insurance: You pay the premiums with personal after-tax income. You own the policy. The benefit goes directly to your named beneficiary — usually your family.
• Corporate-Owned Insurance (COLI): Your corporation owns and pays for the policy. It receives the death benefit. With proper planning, some or all of that benefit can be distributed tax-free to shareholders through the Capital Dividend Account (CDA).

Why Use Corporate-Owned Insurance?

If your business has retained earnings and you’re paying corporate tax rates (12–15%), then funding insurance inside your company is a strategic play.

You’re using cheaper after-tax dollars — and keeping more working capital flowing.

Key Advantages of COLI:

• Premiums paid with corporate dollars (12–15% tax vs. your personal 40–50%)
• Creates liquidity to fund buy-sell agreements or key person coverage
• Builds a Capital Dividend Account (CDA) — which allows tax-free distributions to shareholders
• Permanent policies (like Whole Life or UL) accumulate tax-deferred growth — a smart use of passive surplus

Why Use Personally-Owned Insurance?

Sometimes simplicity is best. If your goal is to provide for your family, cover personal debt, or leave a direct legacy, a personal policy gives you:

• Full control — it’s your policy, regardless of what happens to the business
• Direct payout to beneficiaries — no corporate structure involved
• Clean separation between personal and business planning

But it’s funded with personal after-tax income — which makes it more expensive on a net basis. You also lose the opportunity to integrate the policy into your broader business tax strategy.

Side-by-Side Comparison

When to Use One Over the Other

Choose Corporate-Owned Insurance when:

• You want to use retained earnings efficiently
• You’re planning a shareholder buyout or succession strategy
• You want to protect the business from losing a key person
• You’re looking to extract funds tax-efficiently from the corporation

Choose Personally-Owned Insurance when:

• Your priority is purely family protection
• You’re not yet incorporated
• You want full control, regardless of business structure
• You don’t want the business involved in estate distribution

Advanced Strategy: Use Both

Savvy business owners often combine both structures.

• Corporate-owned policy for business continuity, tax sheltering, and succession
• Personal policy for family protection and legacy

You get tax efficiency and personal flexibility.

Final Word

Corporate vs personal insurance isn’t a one-size-fits-all decision. It’s a toolset. The right structure depends on your goals, tax situation, corporate structure, and long-term exit plan.

But here’s the bottom line:

If you’re incorporated, using corporate dollars to fund insurance can unlock serious efficiency — and provide far more than just protection.

Safe Horizon Financial is your go-to partner for smart insurance solutions. Stay ahead with insurance expert advice and tools to protect your wealth.

Disclaimer: The information contained in this article is provided for general informational purposes only and does not constitute financial, legal, tax, or investment advice. While we strive to ensure that the content is accurate and up to date, Safe Horizon Financial makes no guarantees regarding its applicability to your individual circumstances. Readers should consult qualified professionals (such as a licensed financial advisor, accountant, or lawyer) before making decisions based on the information presented. Safe Horizon Financial is not responsible for any actions taken or not taken as a result of this content