Who Can Own a Life Insurance Policy in Canada: You, a Company, a Holding Company or a Trust

Most people spend weeks choosing a life insurance policy and about four seconds deciding whose name goes in the box marked "owner". It feels like a formality. The application asks, someone answers "me", and the conversation moves on.

That box decides more than the premium does. The owner signs every change for as long as the policy exists. The owner's money pays for it. The owner's creditors may be able to reach it. And when the owner dies first, or later hands the policy to someone else, the tax rules look at the owner. A choice that took four seconds can take years and real money to undo.

In Canada there are four kinds of owner: you (alone or with someone else), an operating company, a holding company, or a trust. This page sets them side by side, so you can see what each one changes before anything is signed. It is general information from a licensed insurance professional, not tax, legal or investment advice; the decisions belong with your accountant and your lawyer or, in Quebec, your notary.

Start with why the owner matters.

Why does the choice of owner matter so much?

The owner holds every right under the contract while the person insured is alive: changing the beneficiary, borrowing against the policy, assigning it, surrendering it. The owner's money pays the premium. And the tax rules on transfers, creditors and the death benefit all start from who the owner is, so the choice shapes everything that follows.

If the difference between the owner, the person insured and the beneficiary is not yet clear, read what a policyholder is first. This page assumes those three roles and asks a narrower question: what changes when the owner is a person, a company or a trust.

The four owners are not four versions of the same thing. A person has a lifetime and an estate. A corporation does not die, but its shareholders do. A trust has no will, yet it has trustees, a deed and, for tax, a clock that runs for 21 years. Each carries its own rules into the policy.

Who can be the owner of a policy in Canada?

Four kinds of owner are common: an individual or a couple, an operating company that runs a business, a holding company that owns shares and investments, and a trust acting through its trustees. Each must have an insurable interest in the person insured, or that person's written consent, before the contract can be issued.

An individual owner is the default: a policy on your own life, or on someone in whom you have an insurable interest. Some insurers also allow two joint owners, often a couple, who both sign every request. The consent rules are on financial underwriting and insurable interest.

An operating company carries on the business, with its customers, staff and lender. A holding company usually owns shares of the operating company and holds investments. Either can own a policy on a shareholder or a key person, as explained on corporate-owned life insurance.

In a trust, trustees hold property for beneficiaries under a deed or a will. Subsection 104(2) of the Income Tax Act deems a trust to be an individual in respect of the trust property, and subsection 104(1) reads a reference to a trust as including its trustee, so the trustees sign everything. The plain explanation is on what a trust is for a policyowner.

How do the four kinds of owner compare side by side?

The table compares the four owners on control, payment, the death benefit, creditors, the owner's own death and a later change of owner. It describes what each arrangement does, not what it costs, because the cost depends on your rates, your structure and your province. The sections below take each row in turn.

Read across any row and the pattern is the same: none of the four is right by default. Each one solves a particular problem and creates paperwork of its own.

Who controls the policy under each owner?

Control follows the owner. A person signs for themselves; joint owners usually sign together. A company acts through whoever can bind it under its by-laws and resolutions. A trust acts through its trustees, within the powers the deed gives them. The person insured controls nothing unless they also hold one of those roles.

For an individual, control is simple until it is not. If you lose capacity, nobody can sign for you unless a power of attorney or, in Quebec, a protection mandate covers it. A joint owner adds a second signature to every request.

For a company, control depends on the shareholders and directors. While you are the sole director and shareholder, the difference is invisible. The day a partner, a child or an investor holds shares, your signature alone may no longer be enough.

For a trust, control is written in advance. The trustees can do only what the deed allows, and they owe their duties to the beneficiaries, not to the person who set the trust up. That keeps decisions steady when people change, and leaves the trustees without an answer when the deed did not foresee a situation.

Who pays the premium, and with which dollars?

The owner normally pays, and the kind of owner decides which tax the money met first. A person pays with income already taxed personally. A company pays with income taxed at corporate rates. A holding company often pays with dividends from the operating company. A trust pays only with money someone gives or lends to it.

When a company pays the premium on a policy someone else owns, a different question appears. Subsection 15(1) of the Income Tax Act includes in a shareholder's income the value of a benefit a corporation confers on that shareholder. The cases where the payer and the owner differ are set out on when the corporation pays and the shareholder owns.

Whether paying through a company costs less over a lifetime is not settled by the corporate rate alone, because money leaving the company later meets personal tax. That comparison is on personal or corporate ownership of the contract.

A trust raises its own funding question, because it has no income to start with: a parent or grandparent usually gives or lends it the money. Subsection 75(2) can attribute income and gains on trust property back to the contributor, where the property may revert to that person or pass to people that person later chooses, and other attribution rules can reach family gifts and loans. Ask your accountant before the first premium is paid.

Who receives the death benefit under each owner?

Whoever the owner names. A person usually names family. A company that owns a policy usually names itself, so the proceeds arrive inside the company. A trust usually names itself, so the trustees receive the money and deal with it under the deed. The owner and the beneficiary can differ, and that difference changes the tax result.

Under subsection 148(9) of the Income Tax Act, a payment in consequence of the death of the person insured under an exempt policy is not a disposition of the policy. What happens to the money next depends on who receives it.

When a private corporation receives the proceeds because of a death, paragraph (d) of the definition of capital dividend account in subsection 89(1) adds them to that account, less the adjusted cost basis immediately before the death. The rules are on the capital dividend account, and the steps on paying a capital dividend after a death.

When a trust receives the proceeds, the deed decides whether the money is held, invested or paid out. If trust income is paid or made payable to a beneficiary, subsections 104(13) and 104(24) set out when it is taxed in that beneficiary's hands. A trust created by a will is a separate route, explained on a death benefit and a testamentary trust.

What can creditors reach under each owner?

Creditors look at the owner. Provincial law can protect a personally owned policy from your creditors when certain family members are named or a designation is irrevocable. A company's policy is an asset of that company. A trust's policy belongs to the trust, and what that shields depends on the deed and the funding.

For an individual owner, protection is a feature of the designation. In Quebec, article 2457 of the Civil Code exempts the rights under the contract from seizure while the beneficiary is the owner's married or civil union spouse, a descendant or an ascendant. The other provinces set their own rules in their insurance acts. The detail is on the designation and what a creditor can reach.

For a corporate owner, the family protections are not designed for a company that owns a policy for its own benefit. An operating company's policy sits beside the trade risk. A holding company puts it one corporation away, which changes who can reach it and guarantees nothing. See a corporate contract when the company is in trouble.

For a trust, the answer is the least predictable of the four. A trust's property is not the settlor's personal property, but a transfer into a trust made when debts are already pressing can be challenged, and the way the trust was funded matters. This is lawyer's work on your facts, in your province.

What happens if the owner dies before the person insured?

The policy keeps going, because the person insured is alive. Ownership passes to a successor owner named on the insurer's file or, failing that, to the owner's estate under the will. For tax, that transfer is generally a disposition. A company or a trust does not die, so for them the question changes shape.

This is the case people forget. A parent who owns a policy on an adult child, or a spouse who owns one on the other spouse, has an asset that outlives them if they die first. With no successor owner named, the policy waits for the estate, may be exposed to its creditors and may land with an heir never meant to own it. Naming one is usually a line on a form; the beneficiary's second line is a separate point, on what a contingent beneficiary does.

For tax, a transfer on the owner's death is a disposition by operation of law. Subsection 148(8.2) allows a transfer to a surviving spouse or common-law partner at the adjusted cost basis, where the owner was resident in Canada and no contrary election is made. Other transfers can fall under subsection 148(7), below. Death and other property are covered on the deemed disposition at death.

A company does not die; the shareholder does, and the shares pass under the will while the policy stays inside the company. A trust does not die either. Its trustees change under the deed, and the trust continues until the deed ends it or the 21-year rule in subsection 104(4) brings a tax reckoning.

What does a later change of owner cost in tax?

A change of owner is usually a disposition. For a gift, a distribution from a company, a transfer by operation of law or a transfer to someone related, subsection 148(7) deems the proceeds to be the greatest of three amounts, and income arises only above the adjusted cost basis. Some family transfers happen at the basis instead.

In plain words, the three amounts are: the value of the interest, which subsection 148(9) defines as what the owner would receive on a surrender at that moment; the fair market value of anything paid; and the adjusted cost basis just before the transfer. The old owner is deemed to receive the largest, and under subsection 148(1) includes in income the part above the basis. The new owner acquires at the same figure.

Two family exceptions matter. Subsection 148(8) allows a transfer to the owner's child for no consideration at the adjusted cost basis, where a child of the owner or of the person receiving it is the person insured. Subsection 148(8.1) allows a transfer during life to a spouse or common-law partner, or to a former spouse in settlement of marriage rights, at the basis, where both are resident in Canada and no election is made to the contrary.

Moving a policy from a company to a shareholder adds a second question: if the shareholder pays less than it is worth, subsection 15(1) can include the difference in income. Moving a policy into or out of a trust is a disposition the accountant reads with the insurer's figures for that day. Each transfer is easier to plan before the policy is issued than to fix afterwards.

How is ownership different in Quebec?

The federal tax rules are the same, but the civil law differs. A Quebec trust is a separate patrimony that nobody owns. A Quebec owner of a policy on another person's life can name a subrogated policyholder to take over at death. And a spouse named as beneficiary is irrevocable unless the designation says otherwise.

Under article 1260 of the Civil Code, a trust results from an act by which the settlor transfers property from his patrimony to another patrimony he constitutes, appropriated to a purpose, which a trustee undertakes to hold and administer. Article 1261 makes it autonomous and distinct from those of the settlor, the trustee and the beneficiary, none of whom has a real right in it. Material written for the common law provinces does not describe it.

Article 2445 lets the owner of insurance on another person's life appoint a subrogated policyholder, who takes the owner's place if the owner dies first. Article 2449 makes the designation of a married or civil union spouse, in a writing other than a will, irrevocable unless it says otherwise, which limits what the owner can do without that spouse's consent.

A notary is usually involved, for a trust deed, a notarial will or a protection mandate. The wider rules are on the Civil Code and the life insurance contract, and Revenu Québec sits alongside the federal return.

Where does each kind of owner lead next?

This page is the map. Each kind of owner has its own page, or set of pages, that goes further. Pick the one that matches what you are considering and follow it, rather than reading everything. The trust pages are new in this series; the corporate pages already cover the company options in depth.

Weighing yourself against your company? Read personal or corporate ownership of the contract. Already have two companies? Read the holding company and where the contract sits.

New to trusts? Start with what a trust is for a policyowner. A family trust owning the policy directly is on a family trust as the policyowner, and a family trust holding the shares of a holding company that owns it on a family trust, a holding company and the policy.

If the question is who receives the money, see a minor beneficiary and a beneficiary who cannot be found. The rest is gathered in the policy basics section.

What should you bring to the accountant and to the lawyer or notary?

Bring the four roles written down: the owner, the payer, the person insured and the beneficiary. Then ask each professional the questions that belong to them. The accountant answers the tax questions, and the lawyer or, in Quebec, the notary answers the questions about control, creditors and documents. Ask before the application is signed.

For your accountant:

• If a company pays and someone else owns or receives, does a shareholder benefit arise under subsection 15(1)?
• If a corporation is the beneficiary, how would the capital dividend account credit be calculated from the projected adjusted cost basis?
• If a trust owns the policy, how will it be funded, and do subsection 75(2) or the other attribution rules apply?
• What would a later change of owner cost under subsection 148(7), using the insurer's figures?
• Does the trust need to file a T3 return each year, and what will it cost to prepare?

For your lawyer or notary:

• Who can sign for the owner if I die or lose capacity, and is a successor owner or subrogated policyholder named?
• What can my creditors, or the company's creditors, reach under each arrangement in my province?
• Does the trust deed, the will or the shareholder agreement say the same thing as the insurer's file?
• If a spouse is named in Quebec, is the designation irrevocable, and is that what I want?

Ask the insurer, in writing, for the contract's provisions on changes of owner and successor owners, and for the adjusted cost basis on the date of any planned transfer. Those documents let both professionals answer on facts.

Who this does not suit

A company or trust as owner does not suit a person who simply needs coverage for a family and has no company, no complex estate and no reason for a deed. For that household, personal ownership with a current beneficiary designation usually reaches the same destination with no filings, no trustees and no fees.

A trust as owner does not suit a family that cannot fund it, will not keep its records or has no trustee willing to serve for years. A deed drafted and then ignored costs money and protects nothing. Nor does it suit anyone drawn to it as a way to hide assets or avoid tax, because the attribution and reporting rules were written for exactly that.

Corporate ownership does not suit an owner who may sell the company soon without a plan for the policy, or whose company has no surplus beyond what the business needs. And a specially designed, high-cash-value, participating whole life insurance policy, under any of the four owners, does not suit money needed in the next few years: the cash surrender value is below the premiums paid for a period, and its dividends are not guaranteed.

What this page will not tell you

It will not tell you which owner to choose. That depends on your family, your companies, your province, your creditors and your plans, and it is decided with your accountant and your lawyer or, in Quebec, your notary. It will not calculate a tax result, value a policy or draft a deed, because each of those needs your documents.

What it can give you is the list of questions, in the right order, and the words to ask them. Write down the four roles on every policy you hold today. Check that the owner is the one you would choose now, and that a successor owner is named where it matters. Then take the rest to the people whose work it is.