Are life insurance premiums tax deductible for a business

Q: Can you write off life insurance premiums on taxes?

Usually, you cant deduct your life insurance premiums from your taxes. The IRS considers this a personal expense. The government also does not require life insurance, so you cant expect a tax break after buying a policy.

To keep a life insurance policy active, you pay premiums monthly or annually. Those life insurance premiums are not tax-deductible, with rare exceptions.

Table of Contents Show

When is life insurance tax-deductible?
Employers offering life insurance as an employee benefit
People with alimony agreements from before 2019
Donating your policy to charity
When do you have to pay taxes on life insurance?
Frequently asked questions
Can you write off life insurance premiums on taxes?
Are premiums tax deductible as a business expense?

You can never deduct life insurance premiums from your taxes if you bought a policy for yourself (meaning it pays out upon your death). There are limited exceptions for employers, some divorce agreements, and policy donations.

Key takeaways

The IRS considers life insurance a personal expense and ineligible for tax deductions.
Employers paying employees’ life insurance premiums can deduct those payments, with some restrictions.
Policies bought as part of child or spousal support agreements before 2019 are tax deductible.
Donating your policy to charity makes any future premiums tax deductible.

Your life insurance isn’t tax-deductible because it’s considered a personal expense, just like clothing or other product purchases. Neither the federal government nor any state requires you to buy life insurance.

The upside is that when you die and your beneficiaries receive the death benefit, the payout they get is tax-free. A benefit payment is not considered income on their income tax return as long as it’s paid in a lump sum.

When is life insurance tax-deductible?

There are a few times when you can deduct your life insurance premiums on your tax return: if you’re an employer offering an employee benefit, if a divorce agreement requires you to buy a policy on your spouse, or if you donate your policy to charity.

Employers offering life insurance as an employee benefit

Owners of certain types of businesses, including LLCs and S corporations, can deduct premium payments they make for their employees.

To qualify, you have to provide life insurance as an employee benefit and neither the business owner nor the company can be the policy’s beneficiary.

Those premiums may also be ineligible for a deduction if:

You are self-employed, also known as a sole proprietorship. Even though you can deduct other expenses, like health insurance, life insurance is excluded if you’re paying for your own policy.
You offer more than $50,000 in coverage. The IRS treats premiums paid for coverage above this amount as employee wages, which you can’t deduct from taxes.
Your spouse is an employee of your company. If their policy pays out to you, you (the business owner) would benefit. That would disqualify you from a deduction.

People with alimony agreements from before 2019

Life insurance tied to divorce proceedings is usually not tax-deductible. The exception is if you have an alimony agreement or divorce decree that both:

Requires you to pay for life insurance on your ex-spouse
Went into effect before 2019

Any alimony agreements that took effect in 2019 or later are not eligible for this deduction because of recent tax code changes. [1]

If your alimony agreement says you have to name your ex-spouse as the beneficiary of your own policy, those premiums are not deductible. A tax or legal professional can answer any additional questions you have about your divorce agreement.

Donating your policy to charity

If you donate your life insurance policy to charity, then any premiums you pay toward the policy after the date of the donation are tax-deductible. This is usually done with a permanent life insurance policy (you could donate a term policy, but if you outlive the term then the charity doesn't get anything).

People with a high net worth sometimes use this as a way to reduce their taxable assets. But if, like most people, you're buying a policy to ensure your family has financial support when you die, this option won't satisfy your needs.

When do you have to pay taxes on life insurance?

Generally, your beneficiaries won’t pay taxes on life insurance benefits and you don’t need to pay any taxes on your policy during your lifetime. But there are a few exceptions, which mostly apply to policies with a cash value:

Selling your own life insurance policy: You can legally sell your life insurance policy if you don’t need it. Any profit is taxed as income.
Surrendering permanent life insurance for cash: If you give up a permanent policy, you may get some of the cash value funds in return. If you get back more than you paid into the account (the principal), that amount is taxable.
Withdrawing from your policy’s cash value account: Cash value earns tax-deferred interest like investment accounts. If you want to withdraw from your cash value, you’ll pay taxes on any amount above the principal.
Your beneficiaries get the death benefit in installments: If your beneficiaries opt to receive benefit payments as an annuity, the unpaid money may earn taxable interest.

Except for specific circumstances, life insurance is considered a personal expense and is not tax-deductible. If you have questions about the tax implications of your life insurance policy, a licensed financial advisor or insurance agent can give you personalized advice.

Frequently asked questions

What type of life insurance is tax deductible?

No type of personal life insurance is tax-deductible. The only exception is if you donate your policy to charity or in certain divorce agreements before 2019.

Can you write off life insurance if you're self-employed?

No, life insurance is not tax deductible if you're self-employed and you're paying for your own policy.

Do you have to report life insurance on your taxes?

You don't have to report your own life insurance on your taxes because it's considered a personal expense. Life insurance payouts don't have to be reported as income as long as they're paid in a lump sum.

Authors

Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

Expert reviewer

Amy Northard, CPA, is a certified public accountant and a member of the Financial Review Council at Policygenius. Previously, she served as a certification administrator for the National Association of Mutual Insurance Companies (NAMIC).

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Can you write off life insurance premiums on taxes?

Usually, you can't deduct your life insurance premiums from your taxes. The IRS considers this a personal expense. The government also does not require life insurance, so you can't expect a tax break after buying a policy.

Are premiums tax deductible as a business expense?

If your business has employees and you pay health insurance premiums for them, these amounts are deducted on the applicable tax form and line for employee benefit program expenses. For example, if your business is a sole proprietorship, you deduct premiums paid to provide health coverage to employees on Schedule C.