General Rule: Personal Life Insurance Premiums Are Not Deductible
For most individuals, life insurance premiums paid on personal policies cannot be deducted on 2017 tax returns. The IRS treats these premiums as personal expenses, similar to auto or home insurance, and disallows the deduction regardless of the coverage amount. This applies whether you pay annually, monthly, or through an installment plan.
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The rationale is straightforward: the death benefit paid to beneficiaries is generally income-free, so the government does not offer a deduction for the premium in exchange. If you are paying for your own life insurance, that premium is considered a nondeductible personal cost.
Exceptions Where Deductions May Apply
There are narrow circumstances where life insurance premiums can become tax-deductible:
- Business-owned life insurance (BOLI): If a C corporation owns the policy on a key employee or executive, the premiums paid may be deductible as a business expense.
- Employer-paid premiums: When an employer pays group life insurance premiums on behalf of an employee, certain portions may qualify as a deductible business fringe benefit.
- Key person insurance in a partnership: Premiums may be deductible if the policy protects the business against financial loss from a partner's death.
What About Policy Cash Value and Loans?
Some permanent life insurance policies build cash value over time. While the growth inside the policy is tax-deferred, accessing it via policy loans does not create a deduction for the premiums paid. The tax treatment of the loan itself depends on the policy's cost basis and how it is structured.
State-Level Considerations
State tax treatment often follows federal rules, but a few states have unique nuances regarding inheritance or estate taxes that intersect with life insurance. If your estate is large enough to be subject to estate tax, the structure of the policy ownership matters.
Bottom Line for 2017 Filers
If you are a standard individual filer paying premiums on a personal life insurance policy, those premiums are not deductible on your 2017 taxes. Consult a tax professional if your policy is owned by a business entity or if your employer contributed to the premium, as the rules differ materially in those cases.