Key points
- A buy-sell agreement (often part of a shareholder agreement) sets who buys a departing owner's shares, at what price and when.
- Life insurance can provide the money at the moment it is needed, so the family is paid and the business continues.
- Policies are commonly owned by each owner on the others (criss-cross) or by the company.
- Premiums are generally not deductible; proceeds to a private company add to its capital dividend account.
- The agreement is drafted by your lawyer; the insurance comes from a licensed agent; we cover the tax.
Why owners insure a buy-sell agreement
Without a plan, an owner's death can leave the surviving owners in business with the family, who may want income the business can't pay, and leave the family holding shares it can't easily sell. A buy-sell agreement sets the rules in advance. The hard part is the money: few owners or companies have the purchase price sitting in cash. Life insurance on each owner is one common way to have it ready. Some agreements also deal with disability or critical illness, with insurance to match.
Common ownership set-ups
| Set-up | How it works | Points to weigh |
|---|---|---|
| Criss-cross (owners hold policies on each other) | Each owner owns and pays for a policy on the other owners and uses the proceeds to buy the shares | Premiums are paid with personal after-tax money; harder to manage with more owners |
| Corporate-owned | The company owns policies on each owner and uses the proceeds to buy back or redeem shares | Premiums paid with corporate money; the capital dividend account comes into play |
The way the purchase is structured changes the tax for the family and the surviving owners, which is why the agreement, the policies and the tax plan should be designed together.
Buy-sell insurance and tax
- Premiums for buy-sell life insurance, whether paid personally or by the company, are generally not deductible.
- Death benefits are received tax-free. When a private corporation is the beneficiary, the proceeds above the policy's adjusted cost basis are added to its capital dividend account and can be paid to shareholders as tax-free capital dividends, by election.
- The deceased owner's shares are generally treated as sold at fair market value just before death, which can create a capital gain on the final return unless the shares pass to a spouse or partner.
- A policy the company pays for but an owner owns can be a taxable shareholder benefit.
Where Finvo fits
We work with your lawyer on the tax side of the shareholder agreement, track the capital dividend account, file the capital dividend election when proceeds are paid out, and prepare the final return. We are not lawyers; the agreement itself is your lawyer's work.
Finvo itself does not sell insurance or give insurance advice. Finvo can connect you with a licensed insurance agent from our partner network who can help with insurance advice if you need it. The licensed agent advises on products and coverage; Finvo covers the tax side. Insurance and other specialists are joining Finvo as contractors, so a group of consultants can work on your file together and you don't have to go from place to place.
Whoever you deal with, you can check that an agent is licensed: in British Columbia with the Insurance Council of BC licensee directory, and in Alberta with the Alberta Insurance Council agent lookup.
This page is general information, checked against the sources below on 5 Nov 2026. Every policy and plan has its own terms; it isn't insurance, tax, investment or legal advice for your situation.