In these cases, small businesses can deduct premiums paid on behalf of employees from their taxes. You generally can't deduct your life insurance premiums from your taxes. The IRS considers this to be a personal expense. The government doesn't require life insurance either, so you can't expect a reduction in taxes after buying a policy.
Life insurance premiums are considered a personal expense and are therefore not tax-deductible. From an IRS perspective, paying your life insurance premiums is like buying a car, cell phone, or any other product or service. Nor is there a state or federal mandate requiring you to buy life insurance, unlike health insurance, so the government doesn't offer you a tax exemption in this case. For individuals and families who purchase life insurance to replace income in the event of an early death, premiums are generally not deductible.
However, it's important to review the details of your situation with a tax expert. This can help you get a more definitive answer and maybe you can brainstorm other ways to help reduce your tax burden. Premiums may be tax-deductible if the policy is used for business purposes, such as providing group life insurance to your employee. Life insurance can help you provide a family safety measure to your loved ones in the event that something happens to you.
Okay, your premiums aren't tax-deductible, but Uncle Sam still offers several tax breaks for life insurance policies. While death benefits for business-related beneficiaries are also often tax-exempt, there are certain situations in which the corporate-property life insurance death benefit may be taxable. These plans are financed only with insurance products, such as cash value life insurance or fixed annuity contracts, and the plan owner can deduct up to hundreds of thousands of dollars in contributions to this plan each year. Another way to get a tax break when it comes to life insurance is to transfer ownership of your life insurance policy.
With permanent life insurance, in addition to a guaranteed death benefit that is normally tax-free, your policy will generate cash value that can accrue over time with tax advantages. Life death insurance benefits paid with qualifying plans are tax-free, and this insurance can be used to pay taxes on plan earnings that must be distributed when the participant dies. Even if you can't get tax deductions for your premiums, there are other potential life insurance tax benefits. In general, cash dividends2 received from a life insurance policy are also tax-free and do not need to be reported as income, as long as the amount does not exceed the net premiums you paid on the policy.
Life insurance and annuity products can be issued by The Western and Southern Life Insurance Company, Western-Southern Life Assurance Company, Columbus Life Insurance Company, Integrity Life Insurance Company, The Lafayette Life Insurance Company, National Integrity Life Insurance Company, or Gerber Life Insurance Company. Policy loans and loans with automatic premiums, including accrued interest, must be repaid in cash or with policy values at the end of the policy or when the insured dies. For example, if you give your life insurance policy to a charity you like or name the charity as your beneficiary, you can get a tax deduction.
