Are Life Insurance Premiums Tax-Deductible?

No deduction is allowed for the premiums paid on a personally owned life insurance policy, regardless of who is the premium payer or who is the policyowner. Such outlays are considered a nondeductible personal expense. This rule applies even where the owner of the policy is someone other than the insured.

Business policyowners generally fare no better. No deduction is allowed for premiums paid on any life insurance policy if the taxpayer is directly or indirectly a beneficiary under the policy. This “all or nothing” prohibition blocks the deduction of premiums even if they would otherwise be deductible as ordinary and necessary business expenses.

With the exception of an employer’s deduction for premiums to pay group term life insurance, there is no situation where life insurance premiums, per se, are directly deductible. There are, of course, situations such as a donor’s charitable gifts of money to pay premiums and an employer’s bonus or compensation to an employee that takes the form of life insurance premiums. But in each of these cases, the deduction, to be allowed, must meet charitable or ordinary and necessary business expense tests and in neither case is the deduction allowed because the gift or payment is life insurance.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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