For Business Owners — Guide
Fund a policy, borrow back up to 90% against it, keep the capital working while the policy compounds. It's elegant — and it's not for most people. Here's the honest version.
What is an Immediate Financing Arrangement (IFA)?
An IFA is a strategy in which a corporation (or individual) funds a permanent life insurance policy, then assigns it to a bank as collateral for a line of credit — typically up to 90% of cash value — and reinvests the borrowed funds. The policy compounds untouched while the capital keeps working; loan interest may be deductible when the borrowing produces income.
Most articles about IFAs start with the upside. We'll start where a diagnostic starts: with the ways it goes wrong. If the risks below don't scare you off, the mechanics that follow are among the most elegant in Canadian planning. If they do — that's a good outcome too, discovered cheaply.
The honest profile is narrow: an incorporated owner or professional with reliably strong corporate cash flow, a genuine permanent insurance need (estate liquidity, buy-sell funding, wealth transfer), investments or a business that productively absorb borrowed capital, comfort with leverage — and insurability. If any one of those is missing, a plain corporately-owned policy without the borrowing, or no policy at all, is the better plan. The IFA is an overlay for people who would own the insurance anyway and don't want the capital parked.
| Variable | Favourable | Unfavourable |
|---|---|---|
| Loan rate (prime-linked) | ~5% (2026) | 7%+ (2024 stress) |
| After-tax cost of interest (if deductible, ON top rates) | ≈ half the nominal rate | full rate if deductibility fails |
| Policy dividend scale | current scale (Sep 2025) | test everything at scale −1% |
| Reinvestment return | exceeds after-tax loan cost | below it — negative carry |
Notice what's absent from that table: magic. An IFA doesn't create yield; it moves the same dollars into a structure where growth escapes annual tax (and the AAII grind), while the cost of access is tax-assisted. When the spread is positive it compounds in your favour for decades. When it's negative, you're paying for optionality — which is only worth paying for if the underlying insurance need is real.
Anyone without surplus cash flow. Anyone who might need to surrender inside ten years. Anyone buying insurance only to get the loan. Anyone who heard "the policy pays for itself" — it doesn't; the structure works precisely because you fund it. And anyone whose banker, accountant and advisor haven't all seen the same one-page summary. We put the risks in the body of the page rather than the footnotes because the clients this fits don't need to be sold — they need it stress-tested.
Generally yes, when the borrowed funds are used to earn income from a business or property and the paperwork supports it — that's the ordinary interest deductibility rule, not an insurance-specific loophole. Borrowing for personal consumption is not deductible, and sloppy documentation can void the deduction.
Banks typically lend up to 90% of cash surrender value on participating policies. Early-cash-value designs make meaningful borrowing available in year one; classic designs take several years to build comparable room.
The death benefit repays the outstanding loan first; the balance is paid to the corporation. The amount by which the death benefit exceeds the policy's adjusted cost basis credits the Capital Dividend Account, allowing tax-free capital dividends to the estate.
The spread compressed or inverted: prime reached 7.2%, and arrangements that only worked at 3% borrowing costs showed their fragility. Well-built IFAs survived because they were stress-tested at higher rates and owned by people who wanted the insurance regardless — that's the standard we apply.
Yes — personal IFAs exist, and the interest deductibility test is the same. The corporate version is more common because retained earnings are the natural funding source and the CDA makes the exit efficient.
Book a Tax Diagnostic
The first conversation is free — your situation, our method, and whether we fit. Complex files quote a planning fee up front: you'll know before we start.
// the only variable in this plan that gets more expensive every year is your age