Are Life Insurance Premiums Tax Deductible?

In the United States, according to IRS, life insurance premiums do not qualify as eligible income tax deductions. They are being treated as personal expenses. However, there are a few exceptions to situations like employee benefits, where a part of the premiums paid can be tax deductible. The tax has always been a complicated issue, therefore to determine whether your specific policy is eligible for any tax deduction, it’s better to discuss with a tax professional.

are life insurance premiums tax deductible

Individual Policy Premiums and Taxes

If you own an individual life insurance policy, then the premiums paid for this policy are not tax deductible. Personal expenses are not eligible for tax deductions and investing in life insurance is a personal expense, no matter how expensive it is. Since you have been paying for individual life policy with after-tax dollars, your beneficiaries will receive a tax-free death benefit. However, there are a few exceptions.

Are key man life insurance premiums tax deductible?

For Companies:
The premiums paid for key man life insurance policy are not tax deductible. The only way to deduct the premiums is to make the employee a beneficiary.

For Employees:
When providing a key person life insurance policy, if the company itself is the sole owner and beneficiary, then there is no tax obligation for the insured employee. Policy premiums aren’t considered as part of the employees’ taxable income unless they have ownership of the policy or are a beneficiary. If the company transfers the ownership of the policy to the employee, then he/she is liable to pay taxes.

Group Life Insurance and Taxes

In most cases of group life insurance, the company is not the beneficiary, therefore, employers can deduct the premiums paid for that coverage in their taxes.

For group term life insurance, the limited coverage upon which tax premiums are deductible amounts to $50,000. Any money paid to provide coverage in excess of $50000 threshold will not be applicable for a tax deduction.

Want to learn more? Read our detailed article on life insurance and taxes.

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