Fair Market Value Insurance

To obtain a free estimate of the Fair Market Value of your insurance policy please complete the Estimate Request Form.


To learn more, including which types of policies will have value, please contact us and request our Fair Market Value information booklet.


An Introduction to Fair Market Value

Certain transactions involving insurance policies are subject to scrutiny by the CRA. Others may be judged for their validity by the courts. For many years accountants and insurance professionals used the cash surrender value as equivalent to the Fair Market Value. In recent years awareness has grown that there can be a material difference between the two values, and that a valuation by a qualified actuary is required to provide a professional determination of the value.


In addition to the use of Fair Market Values being good practice, it can also yield significant tax savings.

Shareholder to Corporation


*Important* Due to changes proposed in the March 22, 2016 Federal Budget, the tax treatment of transfers from a shareholder to a corporation is expected to change, eliminating the beneficial tax result. Any transfer on or after that date would be affected. Any such transfers should be postponed until the legislation clarifies the tax treatment.

The most common change in ownership of an insurance policy is the transfer of a life insurance policy from a shareholder to a corporation. There are many reasons a corporation may decide that it is beneficial to own a life insurance policy on a non-arm’s length shareholder and rather than obtaining a new policy it is better to transfer a personally owned policy to the corporation. This applies even more so to individuals in poor health who would not be able to purchase a new policy. The secondary consideration of such a transfer is that it allows for the tax free extraction of earnings from the corporation.

Overview of the transfer

A shareholder transferring a policy to his or her corporation is making a non-arm’s length transfer and therefore subject to Section 148(7) of the Income Tax Act. The corporation must be made both the owner and beneficiary. In exchange for the policy the company pays the shareholder the Fair Market Value of the policy. The tax consequences consist of four parts:


Deemed Disposition – The shareholder who owns the policy is deemed to have disposed of the policy for the cash surrender value (CSV). The taxable income to the shareholder will be the CSV minus the Adjusted Cost Basis (ACB). This gain would be taxed as income, not a capital gain.


New Adjusted Cost Basis – The new ACB after the transfer to be equal to the CSV. The corporation has acquired an interest in the policy at the new ACB.


Payment for the Fair Market Value – The company pays or provides a note to the shareholder for the Fair Market Value of the insurance policy. There is no tax to the shareholder and the company has a reduction in retained earnings.


Payment of the Death Benefit – Upon the death of the life insured, the death benefit is paid into the Capital Dividend Account (CDA) to the extent that the benefit exceeds the ACB. The ACB will typically have enough time to decrease to $0, so the entire death benefit is paid into the CDA, which can then be distributed tax free.


Best Policies to Value

The best policies to transfer will result in little or no taxable income upon disposition, and have Fair Market Value that is greater than the cash value. There are several factors which contribute to a policy having a Fair Market Value that is greater than the cash surrender value.


Corporation to Shareholder

A corporation may no longer have any need to own a policy on a shareholder or employee, but the individual who is insured may wish to retain coverage. In this case the policy must be purchased by the life insured for the Fair Market Value, or purchased for less than the Fair Market Value, with the difference being a taxable benefit to the life insured. Because it is a taxable benefit it is best that the Fair Market Value be low.


Corporation to Corporation

Any restructuring requires the use of the Fair Market Value of a policy. This would typically be done when transferring assets between an active company and a holding company.