Reporting Life Insurance on the Tax Return
Life‑insurance premiums paid for a business owner are generally not deductible, so they are not entered on the deduction side of the return. If the policy pays a death benefit, the proceeds are usually tax‑free and are not reported as income, unless the policy was a modified endowment contract.
More from this site
Keep reading the latest coverage
Where to Indicate Premiums
Because premiums are nondeductible personal expenses, they do not appear on Schedule C, Schedule E, or Schedule F. No line on Form 1040 requires a entry for the cost of the owner's life‑insurance coverage.
When to Report Proceeds
If the death benefit is taxable—such as when the policy is a modified endowment contract or the insurer has paid interest on a cash‑value policy—the amount is reported as "Other income" on Schedule 1 (Form 1040), line 8z, and then carried to Form 1040, line 8.
Special Situations
When a business purchases a key‑person policy and the premiums are considered a business expense, the cost is deducted on the appropriate business return (e.g., Schedule C for a sole proprietor). The death benefit, however, remains generally tax‑free to the business and is not reported as income.
Summary Table
| Item | Tax Treatment | Form/Line |
|---|---|---|
| Owner's life‑insurance premiums (personal) | Non‑deductible | Not reported |
| Death benefit – standard policy | Tax‑free | Not reported |
| Death benefit – MEC or interest‑bearing | Taxable | Schedule 1, line 8z → Form 1040, line 8 |