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Are life insurance premiums tax-deductible?
Probably not — but it's a little more complicated than that.
Life insurance premiums generally aren’t tax deductible, even for individuals or businesses that are able to deduct other kinds of insurance. But you might be able to write it off as a business expense if it’s an employee benefit.
Find out whether life insurance premiums are taxable for …
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For individuals
Unfortunately, life insurance premiums paid by individuals are not tax-deductible. Unlike an IRA or similar retirement savings account, life insurance policies are considered personal expenses, and not eligible for tax deductions.
For the self-employed
Some people believe that life insurance can be written off as a business expense, but unfortunately this isn’t true. The IRS doesn’t consider life insurance to be a cost of doing business, so you won’t be able to write off any premiums you paid. With that being said, your premiums may be tax-deductible if you’re using life insurance as a way of protecting your business assets.
For LLCs
While the IRS allows LLCs to deduct most of the insurance premiums associated with business expenses, life insurance premiums are not eligible. However, if you’re the owner of an LLC and are paying life insurance premiums for employees, these premiums may be deductible.
Keep in mind that this doesn’t apply if the business owner or LLC itself stands to benefit in any way from the coverage. For example, if your husband works for your business and you’re listed as his beneficiary on his employee life insurance policy, those premiums are not tax-deductible.
For S corporations
Life insurance premiums are only deductible if the corporation is providing life insurance as an employee benefit. The employee will not be taxed on these premiums, as they should be excluded from the wages section on the employee’s W-2. However, there are a couple exceptions:
- For premiums to be excluded from wages, the S corporation must provide group life insurance rather than insurance to just a few key employees. If the policy favors key employees, the premiums must be listed as wages.
- If the corporation provides more than $50,000 worth of coverage for a single employee, the business has to report amounts paid over $50,000 as wages on the employee’s W-2.
If the corporation is a beneficiary or receives compensation when the employee dies, the premiums are not deductible. This includes corporate-owned life insurance policies taken out on behalf of employees. Though this type of insurance can provide protection against the loss of a key employee, monthly premiums are not tax-deductible.
For sole proprietors
Unlike health insurance premiums, life insurance premiums are generally not tax-deductible for sole proprietors. Sole proprietors are treated just like S corporations in that premiums are only deductible if the corporation and owner aren’t beneficiaries under the contract.
Bottom line
For the most part, life insurance premiums are not tax-deductible, but there are certain situations where they can be. Whether you’re an individual or a business owner, it’s essential that you consult a licensed accountant for any tax-related questions, as they can offer the most accurate advice based on your situation.
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Frequently asked questions
Ask an Expert
I am thinking of buying permanent life insurance combined with long term care
are the premiums paid tax deductible
Hi Mitch,
Thanks for getting in touch with finder. I hope all is well with you. :)
The answer to your question is most likely no. As an individual paying life insurance premiums, your expense is considered to be a personal expense and therefore considered as not tax-deductible.
You may want to speak to a licensed accountant to learn more.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Have a wonderful day!
Cheers,
Joshua