Are these insurance premiums deductible?
INDIVIDUAL LIFE INSURANCE
Individuals: Usually not. If you use the life insurance contract as collateral for a loan: The premiums may be deductible, but you must seek advice from a tax specialist.
Businesses: Like an individual, a corporation can deduct life insurance premiums if it uses the policy as collateral for a loan. Again, you absolutely must seek advice from a tax professional.
GROUP TERM LIFE INSURANCE
Individuals: No. The employer usually pays these premiums, which are considered taxable income for the employee.
Companies: Does your company pay its employees’ premiums? If so, these bonuses are tax-deductible, as long as they are reasonable business expenses.
What type of life insurance do you need?
When should you buy life insurance?
How much life insurance do you need?
CHARITABLE GIVING THROUGH LIFE INSURANCE
Individuals: No, but you may get a tax credit if the charity owns the policy. What is a tax credit? As you may already know, tax deductions reduce your taxable income. Tax credits directly reduce the tax you have to pay.
What if you own the policy and name the charity as the beneficiary? You will not have a tax credit for the premiums paid, but your estate will have one for the death benefit. (The death benefit is the amount paid to the beneficiary of a contract upon the insured person’s death.) Seek advice from a tax professional if this strategy interests you.
Businesses: Yes, if the charity is the contract holder. Again, it is recommended to seek professional advice before resorting to this strategy.
4 easy ways to maximize your charitable giving
LIFE OR HEALTH INSURANCE OWNED BY AN EMPLOYEE WHOSE PREMIUMS ARE PAID BY THE EMPLOYER
Individuals: No. The premiums paid by the employer represent a taxable benefit for the employee.
Businesses: Yes, as long as the bonuses are reasonable business expenses.
EMPLOYEE PROTECTION
Individuals: This is impossible because individuals cannot take out employee protection to insure themselves. Either way, it would be considered individual insurance.
Companies: No. Premiums a business pays for life or health insurance are not deductible where it is determined that the industry will receive the insurance benefit.
GROUP HEALTH INSURANCE OFFERED BY THE EMPLOYER TO ITS EMPLOYEES
Individuals: No. Premiums for critical illness insurance and income-type long-term care insurance (LTCI) paid by the employer represent a taxable benefit to the employee. Employer-paid premiums for disability, personal health, and reimbursement-type LTCI do not represent a taxable benefit to the employee.
Businesses: Yes, if the bonuses are reasonable business expenses. No, if the dividends are paid for a shareholder.
Do you need critical illness insurance?
Five things to know about long-term care insurance
HEALTH INSURANCE OWNED BY INDIVIDUALS OR SELF-EMPLOYED
Individuals: No for critical illness insurance, income-type LTCI and disability insurance.
What about personal health insurance, including reimbursement-type LTCI policies? No, unless you are self-employed, yes (subject to certain limitations). Non-deductible private health insurance premiums may qualify for the medical expense tax credit.
Businesses: This coverage is not available.
Are you eligible for the Disability Tax Credit?
Are you entitled to a tax refund for your medical expenses?
Are you paying more tax than you should?
Before claiming a tax deduction for an insurance premium, please consult your tax professional. If you don’t have one, ask your advisor to recommend one.
Find an advisor near you.
