Generally, life insurance premiums are not tax‑deductible for individuals, but certain business‑related policies and specific circumstances allow limited write‑offs.
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Individual policies
For personal coverage, the Internal Revenue Service treats premiums as a personal expense, which means they cannot be deducted on your federal tax return. The death benefit paid to beneficiaries is also tax‑free, so there is no taxable income to offset.
Business‑owned policies
If a company purchases a life insurance policy on an employee or owner and is the beneficiary, the premium may be deductible as a business expense, but only if the policy is considered a legitimate business expense and not a personal benefit. When the business is the beneficiary, the death benefit is taxable to the company as ordinary income.
Key exceptions
- Key‑person insurance: Premiums may be partially deductible if the policy is required for a loan or other business purpose.
- Cash‑value policies: Premiums are not deductible, but the cash value growth is tax‑deferred until withdrawal.
- Medical or dependent care coverage: If the policy is part of a qualified employee benefit plan, some costs may be excluded from employee wages.
Reporting requirements
When a policy is owned by a business, the IRS requires Form 1099‑INT or 1099‑R for any taxable death benefits or cash withdrawals. Individuals receiving a death benefit do not report it, but any cash value accessed is taxable as ordinary income.
Summary table
| Policy type | Deductibility of premiums | Taxation of benefit |
|---|---|---|
| Personal term | Not deductible | Benefit tax‑free |
| Business key‑person | May be deductible | Benefit taxable to business |
| Cash‑value (whole life) | Not deductible | Cash growth tax‑deferred; withdrawals taxable |