Term life insurance provides coverage for a fixed period at a lower premium; permanent life insurance provides lifetime coverage and can accumulate cash value, and the choice has significant corporate tax and estate planning implications for business owners.

For incorporated business owners, the comparison goes beyond personal coverage needs. Corporate-owned permanent life insurance, whole life or universal life, can accumulate investment growth on a tax-sheltered basis inside the policy, with proceeds paid to the corporation tax-free on death and then distributed to shareholders largely tax-free through the Capital Dividend Account.

Term insurance is typically used for finite obligations: covering a shareholder loan, funding a buy-sell agreement, or providing key person coverage during periods of high owner dependency. Permanent insurance is a long-term wealth transfer and tax planning tool. The decision depends on the business’s cash flow, the owner’s estate objectives, and whether the policy serves a protection need, a wealth accumulation objective, or both.

The right insurance structure for a business owner is a tax and estate planning decision as much as a coverage one. See how Wefinx approaches exit planning.

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