Can whole life insurance premiums be tax deductible?
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UPDATED: Jan 14, 2017
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- Whole and term life insurance premiums are NOT considered tax deductible for individuals and families.
- Whole and term life insurance premiums are NOT considered tax deductible if you are the sole owner of a business.
- You can let the cash value build on a whole life policy and use that tax-free money to pay the premiums.
- Businesses can use the premiums paid on whole life for employees as a tax deduction if the owners/business are not beneficiaries or profit in any way.
- Businesses can deduct premiums paid for whole life insurance on employees if it is part of a compensation package and not excessive in amount.
- Businesses can write off the first $50,000 in premiums paid on group term life insurance for employees if the company does not benefit in any way.
Life insurance is considered a necessity for some individuals, families and businesses. Knowing that you are leaving enough finances behind to keep things running strong is important.
Premiums can be a costly part of the monthly budget. It leaves many wondering if any or all of this amount is tax deductible at the end of the year.
Several types of insurance premiums are tax deductible, especially for businesses, but there are special rules that govern when and if life insurance premiums can be deducted.
Learn more about taxes and life insurance below and make sure to use our free comparison tool above!
Are Individual Whole Life Insurance Premiums Tax Deductible?
The answer to this is a resounding “no.” The IRS deems payments for any type of life insurance for you or your family to be a matter of personal financial business and the government takes no responsibility.
Many wonder why they assist in health insurance, but not life coverage. Health insurance helps keep the costs of healthcare down, especially when it comes to the programs the government has in place to help those who are seriously under-insured.
There is a relational impact to the economy. It is not the same with life insurance.
You are not able to deduct life insurance premiums if you are the sole proprietor of a business either. If you or your business/estate will benefit from the money it is not a deductible premium.
You are able to get loans on the cash value that builds up on a tax-free basis unless and until it reaches a level over what the policy is worth. All amounts past this are considered taxable income.
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How to Get Premiums Paid at No-Cost to You
At some point, you will be paying zero out-of-pocket to have the whole life insurance policy you need. It may not be a break for you at tax time, but it puts more money in your pocket every month of the year.
Intricate Exception for Business Deductions
There are special exceptions for businesses to use premiums for employee life insurance as a tax deduction, but you have to be careful and follow the guidelines. It is a very intricate set of rules that have to be met in order to qualify.
You need to carefully set aside paperwork and funds to document that all persons with ownership rights to the business had life insurance paid from a different source as the qualified employees.
If your company is audited and you cannot provide detailed paper trail proof, you may be assessed fines.
–All Types of Employer-Paid Life Insurance
A business can deduct the premiums it pays for employee life insurance if:
- The owner or business is not the beneficiary.
- The company in no way benefits from the funds.
- The policy is part of a benefits package or compensation.
- The amount is not excessive.
–Group Term Life Insurance for Employees
A business can deduct the premiums paid for employees on a group term life insurance policy if:
- The owners or business are not beneficiaries.
- The business in no way benefits from the money.
- Limited to the first $50,000 annually.
There are plenty of avenues to explore when trying to save money during tax season. Some insurance premiums are deductible and others are not, per the IRS guidelines.
It is best to do a little research but check with a tax professional to make absolutely sure that you are on the right track.
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