Can you claim life insurance on your taxes?

Are you wondering, "is life insurance tax deductible?" Most life insurance policies are not. Although permanent life insurance policies are considered tax deferred, this only refers to the accrued cash value. Employers that offer group term life insurance may be eligible for tax deductions on life insurance coverage for up to $50,000 per employee.

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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Benjamin Carr was a licensed insurance agent in Georgia and has two years' experience in life, health, property and casualty coverage. He has worked with State Farm and other risk management firms. He is also a strategic writer and editor with a background in branding, marketing, and quality assurance. He has been in military newsrooms — literally on the frontline of journalism.

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Reviewed by Benji Carr
Former Licensed Life Insurance Agent

UPDATED: Nov 17, 2021

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Quick Facts

  • Life insurance premiums aren’t typically tax-deductible for those with individual life insurance policies
  • Death benefits aren’t considered taxable income for beneficiaries
  • Employers may be eligible for some tax deductions if they pay for employee life insurance policies

Is life insurance tax deductible? You may have heard that there are differences in tax benefits between term vs. permanent life insurance. Doing your research can save you money.

With so many unfamiliar terms, life insurance policies can be even more confusing than taxes. We’ll guide you through the basics of insurance tax benefits in this article.

Ready to find out whether life insurance is tax-deductible? Keep reading to learn more, and take advantage of our free quote tool above to get instant rates from top life insurance companies today.

Is life insurance tax deductible?

Life insurance policies are not typically considered tax-deductible, but there are some cases in which taxes are relevant to a life insurance policy.

Overall, life insurance policies and tax status will depend on whether or not the life insurance policy is independent or through a business. In addition, permanent life insurance policies may have tax implications too.

Businesses are granted special permissions when it comes to taxes with both auto and homeowners insurance, according to the Insurance Information Institute.

As a business owner, you can expect some different rules when filing your taxes and earning tax benefits. Below, we’ll simplify different scenarios to make it as clear as possible how you can make the most out of your life insurance policy during tax season.

Is a life insurance premium tax deductible?

Life insurance premiums are not typically considered tax-deductible. If you have purchased an individual life insurance policy, it’s unlikely that you’ll be rewarded with any tax benefits.

Is term life insurance tax deductible? Unfortunately, term life insurance policies are usually an independent, personal expense that is excluded from tax deductions.

That said, a business owner paying for a portion of their employees’ term life insurance premiums may be able to deduct premiums from taxes. Even in this case, there are limitations on how much of the policy is eligible for tax deductions.

For example, the IRS allows employers that offer group life insurance coverage to deduct up to $50,000 in life insurance premiums per employee. This is how many employers can afford to pay for group life insurance.

Is whole life insurance tax deductible?

Whole life insurance premiums will work similarly with taxes despite the cash value component. The premiums that you pay will not be considered tax-deductible.

That said, there are some tax benefits with whole life insurance. The cash value component is generally considered tax-deferred. This means you won’t pay taxes on the cash value.

In addition, the death benefits for term and whole life insurance policies aren’t usually treated as taxable income. If a whole life insurance policy accrues interest or dividends, those may be taxed, however.

Is life insurance tax deductible for a business?

As mentioned above, life insurance premiums can be partially tax-deductible for a business. That said, there are limitations and not all businesses are created equal.

As mentioned above, employers that offer group life insurance can be eligible for tax deductions on their employees’ life insurance policies. What about small businesses? Is life insurance tax deductible for self-employed business owners?

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The size of your business will determine how much flexibility you’ll have with life insurance tax breaks. Group life insurance typically requires 10 or more employees, so smaller businesses may not be eligible.

Limitations on company size and coverage benefits are just a few of the problems with group life insurance.

For sole proprietors, life insurance premiums aren’t usually tax-deductible. In simplest form, if you buy your own life insurance policy, you won’t be eligible for tax deductions.

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Tax Deductible Life Insurance: The Bottom Line

As a whole, there are very few circumstances in which a life insurance policy will be considered tax-deductible. Tax deductions are usually only available to employers that pay for employees’ insurance policies.

By now, you should have a better understanding of when life insurance is tax-deductible. Before you go, use our free quote tool to get instant rates from top life insurance companies near you.

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