Life insurance and taxes. Quite possibly, two of the most boring topics you can talk about.

But they are topics that are important to understand.

In this article, we’ll provide a brief, plain-English and as non-boring an answer to a common question people have about these two topics… is life insurance tax-deductible?

There are two parts of life insurance that we’ll cover here.

One is the premium payments you make on your life insurance policy.

The other is the death benefit. This is the amount of money that will be paid out to your dependents in the event of your passing.

These are two separate issues, and we’ll cover both to see whether or not they are tax deductible.

Is Life Insurance Tax Deductible?

First, let’s talk about the premiums you pay each month or year for your life insurance.

No, these life insurance payments are not tax deductible. You cannot deduct life insurance payments from your taxes. If you try, the IRS will not be too happy with you.

Many people consider life insurance to be a requirement, so they do not burden their beneficiaries with debt.

But, for the purpose of taxes, that’s not the case. Life insurance is considered a personal expense. Something you don’t have to have. This is why you cannot deduct your premium payments on your taxes.

From the IRS’s perspective, paying life insurance premiums is comparable to purchasing a car, cell phone, or any other product or service.

Unlike health insurance, there is no state or federal requirement that you obtain life insurance. Therefore the government is not granting you a tax break in this instance.

That said, there are a few instances in which life insurance premiums are tax deductible.

If you are the owner of a corporation, you can deduct business-paid premiums for life insurance policies owned by company executives and employees who report the payment as income. Certain business owners, particularly those with LLCs and S corporations, can deduct premium payments made for their employees.

To qualify, you must offer life insurance as an employee benefit, and neither the business owner nor the firm can be the beneficiary of the policy.

However, you cannot deduct your life insurance costs if you are self-employed.

If you donate your life insurance policy to a charity, all premiums you pay after the donation date are tax-deductible. This is typically accomplished with a permanent life insurance policy. You might donate a term policy, but the charity would receive nothing if you outlast the term.

Do Beneficiaries Have To Pay Taxes On Death Benefit?

When you pass away and your beneficiaries receive the death benefit, their payment is tax-free. As long as a benefit payment is made in a lump sum, it does not count as income on their tax return.

But while they don’t pay taxes on that amount, the death benefit is usually not tax deductible.

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