Key Person and Buy-Sell Insurance
Protect the business from losing the people it depends on. We connect Ontario business owners with licensed advisors who structure key person, buy-sell and overhead coverage.
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Quick answer
What is key person insurance and how does it work in Ontario?
Key person insurance is a life, disability or critical illness policy that a business owns on someone it depends on, such as an owner or top manager. If that person dies or cannot work, the corporation receives the benefit to replace lost profits, repay loans or fund recruiting. A licensed Ontario advisor can structure coverage with your accountant and lawyer.
Key Person and Buy-Sell Insurance
Many businesses depend on one or two people: the owner who holds the client relationships, the partner with the technical expertise, or the manager who runs operations. If that person dies or becomes seriously ill, revenue, financing and even the survival of the business can be at risk.
Key person insurance and buy-sell insurance are how business owners plan for that. They are usually life, disability or critical illness policies owned by the business or the shareholders, designed around a specific business need.
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We are not an insurer or an advisor. We find you the right one.
Matched by need
We connect you with an advisor who works with businesses and families like yours.
Licensed life and health advisors
Life and health insurance advisors in Ontario are licensed by the Financial Services Regulatory Authority of Ontario (FSRA).
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Once we receive your information, a professional in our network will connect with you within 24 hours.
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Our referral service is free. You deal directly with the advisor for quotes and coverage.
What are the common key person and buy-sell strategies?
An advisor, working with your accountant and lawyer, will match the strategy to your structure.
Key person insurance
The corporation owns a policy on a key person and receives the benefit if they die or, with disability or critical illness coverage, become unable to work. The money can replace lost profits, repay loans and fund recruiting.
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Shareholder buy-sell funding
A shareholders’ agreement often requires the surviving owners to buy a deceased owner’s shares. Life insurance funds that purchase so the family is paid fairly and the business is not drained of cash.
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Business loan protection
Lenders may require coverage on owners who guarantee business debt. A policy you own and control can be more flexible than lender insurance.
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Business overhead expense
Disability coverage that pays the fixed costs of running the business, such as rent and staff wages, while the owner recovers.
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How is corporate owned life insurance taxed in Canada?
The general rules
In general, premiums for corporate owned life insurance are not tax deductible, and the death benefit received by a private corporation is not taxable. Much of the benefit can be credited to the capital dividend account, which can allow it to be paid to shareholders as a tax free capital dividend.
These rules are technical. Always involve your accountant and lawyer when structuring coverage.
How do key person, buy-sell and overhead coverage compare?
Each strategy solves a different business problem when an owner or key person dies or cannot work.
| Strategy | Who typically owns the policy | Who receives the benefit | Main purpose |
|---|---|---|---|
| Key person insurance | The corporation | The corporation | Replace lost profits, repay loans, fund recruiting |
| Buy-sell funding | The corporation or the shareholders | Depends on the structure | Buy a deceased owner's shares under the agreement |
| Business loan protection | The business or owner | The business, to repay the lender | Cover debt the owner guarantees |
| Business overhead expense | The business | The business | Pay fixed costs while the owner recovers |
Key Person and Buy-Sell FAQs
Are key person insurance premiums tax deductible?
Generally no. Premiums for corporate owned life insurance are usually not deductible, although there are limited exceptions, such as coverage required as collateral for a loan.
Is the death benefit taxable to the corporation?
Generally no. A private corporation receives the benefit tax free, and much of it can be credited to the capital dividend account.
Do we need a shareholders’ agreement?
Yes. Buy-sell insurance works alongside a shareholders’ agreement that sets out how shares are valued and bought. Your lawyer drafts the agreement and your advisor funds it.
Can key person coverage include disability?
Yes. Key person disability and critical illness coverage protect the business when a key person cannot work, which is statistically more likely than death during a career.
Who should be insured as a key person?
A key person is anyone whose death or long absence would materially hurt revenue, operations or financing. That often includes owners, partners, top salespeople, technical experts and senior managers. An advisor can help you identify these people and estimate the financial impact of losing each one.
How much key person insurance does a business need?
There is no single formula. Common approaches look at the profits the person generates, the cost and time to recruit and train a replacement, and any debts they personally guarantee. For buy-sell coverage, the amount is usually tied to the value of each owner's shares under the shareholders' agreement, which should be reviewed as the business grows.
What is the difference between key person insurance and buy-sell insurance?
Key person insurance protects the business itself, since the corporation owns the policy and receives the benefit to cover losses. Buy-sell insurance funds the purchase of an owner's shares when they die or, in some structures, become disabled, so the family is paid and the remaining owners keep control. Many businesses use both.
Is key person insurance legally required in Ontario?
No. Ontario law does not require key person or buy-sell insurance. However, lenders may require coverage on owners who guarantee business debt, and a shareholders' agreement may require funding for a buyout. An advisor can review these obligations with you.
What information is needed to apply for key person coverage?
Applications typically ask for details about the insured person, including age, health and lifestyle, and about the business, such as financial statements, the person's role and the reason for coverage. Insurers often require medical underwriting, which can take several weeks. A licensed advisor, licensed by FSRA, guides the application and compares insurers.
What to expect from a benefits advisor
A licensed advisor handles the details so you can make a clear decision.
1Discovery call
Share who needs coverage, what matters most and your budget. For businesses, bring your current plan and renewal if you have one.
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2Plan design
Your advisor recommends coverage levels and cost sharing that fit your needs, and explains the trade offs in plain language.
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3Compare insurers
Your advisor gathers quotes from multiple insurers and compares price, coverage and service side by side.
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4Enrol and support
Once you choose, your advisor handles the application and enrolment, and stays available for claims questions and renewals.
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