What happens to the business if you get sick?
A heart attack, cancer or stroke rarely ends a career on the spot, but it can take you out of the business for months. The bills don't stop while you recover. Critical illness insurance pays a lump sum on diagnosis. A shared setup splits it between the company and you: the business is protected if you get sick, and you get the premiums back if you don't.
How a shared setup works
- 1The company and you jointly own one critical illness policy, under a written agreement.
- 2The company pays for the core coverage. You personally pay for the premium refund feature.
- 3If you're diagnosed with a covered illness, the company receives the lump sum to keep things running while you focus on getting better.
- 4If you stay healthy for the full term, the premiums come back to you personally.
Only one of the two ever pays out: the lump sum or the refund, never both.
Why owners like it
- It protects the company's cash flow at the worst possible time.
- The company carries the core cost.
- If you never claim, the money isn't gone. It comes back to you.
Is this a fit?
Usually a good fit
- Owner-managers and key people the business depends on
- You're healthy enough to qualify
- You're comfortable with a long commitment. The refund usually needs the policy kept for 15 years or more.
Probably not
- You'd want the lump sum paid to you personally. A policy you own yourself may fit better.
- You might cancel within a few years.
The honest fine print
- CRA hasn't ruled on every tax question these arrangements raise. If the split isn't set up properly, the refund could be treated as a taxable benefit to you. Your accountant needs to review it before it starts, not after.
- How the premium is split between you and the company matters. I'll give your accountant the insurance company's breakdown to review.
- The company's share of the premium generally isn't tax-deductible.
Questions to take to your accountant
- 1.Is the premium split fair, and how do we document it?
- 2.What's the tax risk on the refund, and how do we keep it low?
- 3.If the company receives the lump sum, how would we use it, and is any of it taxable if it comes out to me?
FAQ
If I get sick, can the company just hand me the lump sum?
The company receives it. Moving it into your hands personally is a separate step, and that can be taxable. Your accountant can map out how that would work.
Does this replace disability insurance?
No. Critical illness pays once, on diagnosis. Disability insurance replaces income month after month if you can't work. Many owners need both.