When a corporation is dissolved, and corporate owned life insurance is left behind what happens?

Last updated:  February 2024

A common problem when a corporation is wound up or dissolved is that the life insurance policy owned by the corporation is not legally transferred out of the corporation before the dissolution occurs. In the common law provinces when a corporation seeks to dissolve it will obtain articles of dissolution. To obtain articles of dissolution two events must occur. Provincial legislation requires that the company must have no liabilities in existence at the time of dissolution and secondly, all assets of the company must be transferred out of the corporation before dissolution occurs. In Quebec, where there is one shareholder, and the corporation has been dissolved the life insurance policy reverts back to that shareholder.

If a policy is not legally transferred out of the corporation (a transfer of ownership has been signed and filed with the insurer) prior to dissolution, then the assets have not been distributed pursuant to the provincial legislative requirement to grant articles of dissolution. When this oversight occurs, the life insurance policy becomes an asset of the Crown. In Quebec this is also the case unless the corporation has a single shareholder as noted above. In that case, the policy would be owned by the single shareholder and not the Crown.

To be able to carry out a transfer after the fact, additional steps need to be taken. Depending upon the province, a consent to transfer property confirming that the Crown takes no interest in the policy would enable the transfer of ownership of the policy to be signed by the former director/officer of the company. The insurance company will require a copy of this consent to carry out the transfer. In some provinces (mainly Manitoba and Saskatchewan), a consent to transfer property may not be given easily. Where this is the case, another alternative is to have the company re-instated by the province, the transfer of the life insurance policy occurs by the company, and then the company can be dissolved. This alternative is more costly and complicated and is sometimes not available as an option in provinces where re-instatement cannot occur after a certain time period. Also, if consent is not given by the province, it may be possible, where it makes sense from a cost, product type and insurability perspective, to allow the policy to lapse and apply for new insurance. 

It is therefore important from an advisor’s perspective to check with clients as to the status of their corporation on a yearly basis. Engaging in this conversation may result in finding out that there are plans to dissolve the corporation. With this knowledge action can be taken to transfer the policy before dissolution occurs. This will avoid the problem of Crown ownership if the corporation is dissolved, and the policy gets left behind. 

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