The #1 Reason Life Insurance is NOT Tax Deductible
Life insurance is not considered a deductible expense on the individual tax form.
This is because life insurance policies that are based on personal contributions are considered personal expenses and therefore are not considered deductible for the purposes of your taxes.
Even if the premiums by you, your employer or someone else, they are still not considered deductible.
That is also true if the insurance is government or commercial as well.
Life Insurance is usually never tax-deductible because it’s considered a personal expense, like purchasing a product. No state mandates that you buy life insurance, as federal law required up until 2019 for health insurance.
But the upside is that when you die and your beneficiaries receive the death benefit, the payout will be tax-free if you paid the premiums yourself. That is, the death benefit is not considered income for the sake of filing taxes.
The tax law governing life insurance is similar to disability insurance. Disability insurance premiums are also not tax-deductible, and, like life insurance, if you paid for them with your own after-tax income, the benefits will also be paid out tax-free.
Are these Life Insurance premiums tax-deductible?
Individuals: Not usually. If you use your life insurance policy as security on a loan: Possibly, but tax advice is a must.
Businesses: A corporation can deduct life insurance premiums if they are used as security for a loan, the same as an individual. Again, tax advice is a must.
GROUP TERM LIFE INSURANCE
Individuals: No – premiums are generally paid by the employer and are taxable income for employees.
Businesses: If your business pays the premiums for your employees: Yes, provided they’re a reasonable business expense.
LIFE INSURANCE USED FOR CHARITABLE GIVING
Individuals: No, but you get a tax credit if the charity owns the policy. If you own the policy but name the charity as beneficiary, you don’t get a tax credit for the premiums you pay, but your estate gets a tax credit for the death benefit. Tax advice is a must for this strategy.
Businesses: Yes, if the charity owns the policy. Again, tax advice is a must for this strategy.
Are premiums paid on personal life insurance deductible for personal tax purposes?
No. Premiums paid on personal life insurance are a personal expense and are not deductible. Internal Revenue Service (“IRS”) regulations specifically provide that “premiums paid for life insurance by the insured are not deductible.” It is immaterial whether the premiums are paid by the insured or by some other person. For example, premiums paid by an individual for insurance on the life of his or her spouse are nondeductible personal expenses of the individual. Premiums are not deductible regardless of whether the insurance is government life insurance or regular commercial life insurance. Although life insurance premiums, as such, are not deductible, they may be deductible as the payment of alimony or as charitable contributions.
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