Are Life Insurance Premiums Tax Deductible?

Premiums paid for life insurance are not tax deductible in most cases. The Internal Revenue Service (IRS) classifies life insurance premiums as personal expenses like rent or groceries, so they don't qualify as deductible expenses.

There are some exceptions, however, such as when a business owner purchases coverage for their employees or if there is a charity involved. Keep reading to learn more.

On This Page

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  Why Isn’t My Life Insurance Premium Tax Deductible?

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  When Are Life Insurance Premiums Tax Deductible?

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  When Are Life Insurance Premiums Tax Deductible for a Business?

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  Do You Pay Taxes On Life Insurance for the Accumulated Cash Value?

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  When Else Is It Required To Pay Taxes on Life Insurance?

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  What Are the Tax Advantages of Life Insurance?

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  FAQs

Why Isn’t My Life Insurance Premium Tax Deductible?

Life insurance premiums are not tax deductible because they are classified as personal expenses by the IRS.^[1] Like paying for rent, filling up your gas tank or buying food, life insurance premiums do not meet any IRS definition that would qualify it as a deductible expense.^[2]

When Are Life Insurance Premiums Tax Deductible?

It may be possible to write off life insurance premiums on your tax returns if a charity or alimony agreement is involved.

Charity

Life insurance premiums may be tax-deductible in some instances where a qualified charity is involved such as a religious organization like a church or mosque, a nonprofit school or hospital or war veterans’ groups.

If you donate money to a charity for the purchase of a life insurance policy in which the charity is the beneficiary, then that contribution may be tax deductible. However, you cannot claim this tax deduction if any of the listed beneficiaries include you or members of your family.^[3]

Older Alimony Agreements

If you are paying life insurance premiums for your spouse and it was listed in a divorce agreement that was executed before 2019, then those premiums may be tax deductible. This tax deduction is no longer available if the agreement was signed in 2019. Keep in mind that any modifications to the agreement even if it was executed before 2019 will eliminate the tax deduction.^[4][5]

When Are Life Insurance Premiums Tax Deductible for a Business?

Business owners may deduct business-paid life insurance premiums if:^[6]

1. The premiums purchase coverage for their employees
2. The business owner or company is not a designated beneficiary of the policy

Other restrictions may apply, as well. We recommend consulting with a business tax expert to ensure you are meeting all of your tax obligations.

Do You Pay Taxes On Life Insurance for the Accumulated Cash Value?

Although life insurance death benefits are generally not taxable, the accumulated cash value can be under certain conditions. Generally, any amount that exceeds your policy basis — income earned beyond your total premium payments (minus dividends received) must be reported to the IRS as taxable income.^[7]

That means if you surrender the policy for cash, take out a loan and fail to repay it before your policy lapses or withdraw against the policy, you will have to pay taxes on the amount that exceeds the total cost of your life insurance policy.

When Else Is It Required To Pay Taxes on Life Insurance?

If you receive life insurance coverage through your employer, you may need to pay income tax on this benefit if the coverage exceeds a certain threshold. Specifically, you will not need to pay taxes if you receive up to $50,000 of life insurance coverage. However, any coverage in excess of $50,000 becomes a taxable benefit.^[1]

What Are the Tax Advantages of Life Insurance?

Although life insurance premiums are generally not tax-deductible, there are several tax advantages to purchasing a life insurance policy.

Tax-Free Death Benefit

The cash payout (also called the death benefits) issued to your beneficiaries after you die will be tax-free. The beneficiaries will not have to include the death benefits as taxable gross income that would otherwise be reported to the IRS.^[1] However, if a beneficiary receives the death benefit in installments rather than a single lump sum, a portion of the installment must be reported as taxable interest income.^[1]

Tax-Free Withdrawals

If you opt for permanent life insurance like a whole life policy versus a term life policy, your policy can accrue cash value over time. Eventually, you can withdraw against the accrued amount completely tax-free but only up to the policy basis. The policy basis is the total premiums you’ve paid toward the policy minus dividends earned.^[8]

Tax-Free Loans

Instead of withdrawing against the accrued cash value in your policy, you can borrow against it tax-free. However, the caveat is that you must repay the loan before you die or the policy is otherwise canceled. If there is an outstanding balance, it may create a taxable event.^[9]