Understanding Tax Treatment of Life Insurance Premiums

General Rule on Deductibility

Life insurance premiums are not deductible for personal income tax purposes; the cost of protecting your own life does not qualify as a tax‑deductible expense.

Exceptions for Business Owners

If a policy is owned by a business and the business is the beneficiary, the premiums may be deductible as a business expense, provided the policy is not considered a personal benefit to the owner.

When Premiums Are Deductible

Deductibility is possible for policies that serve a legitimate business purpose, such as key‑person insurance, where the loss of an employee would cause a financial hit to the company.

Non‑Deductible Situations

Premiums paid for personal coverage, policies that name the insured or their family as beneficiaries, and most whole‑life or universal‑life contracts remain non‑deductible.

Tax Reporting Considerations

Even when premiums are deductible, any death benefit received is generally tax‑free to the beneficiary, while the cash value growth inside permanent policies may be subject to tax upon withdrawal or surrender.

Summary Table