Table of Contents
Table of Contents

Key Takeaways
- The IRS generally treats life insurance premiums as personal expenses, so they are typically not tax-deductible for individuals.
- Employers and small business owners may be able to deduct premiums for group term life policies under specific conditions.
- Life insurance proceeds are usually paid out income tax-free, offering a valuable benefit to beneficiaries after the insured's death.
- Some permanent life insurance policies offer tax-deferred growth and access to cash value, though loans or withdrawals reduce the death benefit and are generally for emergencies.
- Ownership, business use, and legal agreements can impact tax treatment, so reviewing policies with a tax professional may help.
Getting a break on your taxes can be a welcome relief, especially when you're juggling financial responsibilities. While it's smart to explore all available tax deductions, whether life insurance fits into that picture depends largely on how the policy is used.
This article is for informational purposes only and does not constitute tax or legal advice.
What Is a Tax Deduction?
A tax deduction is an expense you report on your tax return to help lower your taxable income. Reducing that amount may result in a smaller payment to the Internal Revenue Service (IRS) or a larger refund. In some cases, lower taxable income may help you qualify for certain income-based tax credits, such as the Earned Income Tax Credit (EITC), Child Tax Credit, or Premium Tax Credit.
Some common tax-deductible expenses include student loan interest, medical expenses, and contributions to a Health Savings Account (HSA), if eligible.1 Expenses related to a long-term care insurance policy may also qualify, depending on your age and the limits published by the IRS.
Are Life Insurance Premiums Deductible?
If you’re buying term life insurance or permanent life insurance to help protect your family from lost income in case of death, policy premiums are generally not tax-deductible. That applies whether you’re employed, self-employed, or retired.
The IRS typically treats life insurance premiums as personal expenses, which means they do not qualify for a Schedule A itemized deduction or reduce your standard deduction.
However, there are exceptions in certain situations, particularly for employers and small business owners. For example:
- A business may deduct premiums it pays for group term life insurance coverage provided to employees, up to certain coverage limits.
- S corporations may have different rules if they provide life insurance to employees who are also shareholders.
- Premiums paid for key person life insurance or policies assigned as collateral for business loans are generally not tax-deductible, since the business typically benefits directly and receives death benefits tax-free.
It’s important to consult a tax professional or financial expert who can help assess your specific circumstances and avoid any unintended tax exposure.2
Tax Treatment of Life Insurance Proceeds
When a life insurance claim is filed and the benefit is paid out, it is generally not subject to federal income tax unless ownership or transfer rules create exceptions. This is a core benefit of life insurance, and it applies to both term and permanent policies. However, there are nuances:
- If a policy is transferred to another party for something of value (such as a sale), the Transfer-for-Value Rule may apply.
- If a life insurance policy is included in the insured's taxable estate, typically because the insured retained ownership or control, it may increase the estate's value and potentially lead to estate taxes.
- Some states may impose taxes on large death benefit payouts, depending on local rules.
- If the insurer holds the death benefit and pays it out over time, any interest payable on those delayed payments may be considered taxable income to the beneficiary.
Because tax rules can shift and may vary by state, it's important to confirm how these benefits would apply in your situation.
When Life Insurance Premiums May Be Tax-Deductible
While life insurance premiums are generally not tax-deductible for individuals purchasing coverage for personal or family protection, there are a few specific situations where premiums may be deductible as a business expense or tied to other financial strategies.
1. Employer-Paid Group Term Life Insurance
If you're an employer providing group term life insurance as an employee benefit, you may be able to deduct the premiums as a business expense. The IRS allows this deduction for up to $50,000 in coverage per employee.3 Amounts above this limit may be taxable income to the employee, depending on how the plan is structured.
Premiums for other business-owned policies, such as key person insurance, typically aren't deductible since the company is the direct beneficiary of the policy.
2. Charitable Donations of Life Insurance
If you donate your life insurance policy to a qualified charitable organization and name the charity as the owner and beneficiary, you may be able to deduct premiums you continue to pay after the donation. In this scenario, your premium payments could potentially qualify as charitable contributions, allowing you to claim them as itemized deductions on your tax return.
Specific IRS rules apply, including requirements about policy ownership and beneficiary designations, so reviewing this arrangement with a tax professional can be helpful.
3. Alimony Agreement and Court-Ordered Premiums
A divorce decree may require one spouse to maintain a life insurance policy to secure alimony or child support payments, with the spouse receiving support named as both policy owner and beneficiary.
Premiums paid for life insurance policies required by divorce or support agreements finalized on or before December 31, 2018, may be deductible as part of the alimony or support obligation. However, due to tax law changes under the Tax Cuts and Jobs Act, premiums required by agreements finalized after December 31, 2018, generally aren't deductible.4
4. Life Insurance in Qualified Retirement Plans
In limited situations, life insurance may be purchased within a qualified retirement or pension plan. While premiums aren’t directly deductible, they might effectively be paid with pre-tax contributions made to the retirement plan. However, the insured typically must report the economic value of the life insurance coverage as taxable income each year.
Because these arrangements involve detailed IRS guidelines and potential tax consequences, professional guidance is generally helpful.
Potential Tax Benefits of Life Insurance
Even though life insurance premiums are generally not tax-deductible for most individuals, life insurance policies may still offer other potential tax advantages, particularly when it comes to life insurance proceeds, policy structure, and accumulated value.
Tax-Free Death Benefit
One of the primary tax-related benefits of life insurance is that life insurance proceeds are typically not subject to federal income tax. This applies to both term life insurance and permanent life insurance. Your beneficiary generally receives the full death benefit income tax-free, which can help them cover expenses or maintain financial stability after a loss.
However, there may be exceptions. In some cases, state estate taxes could apply if the policy is included in your taxable estate. Additionally, certain ownership or transfer arrangements may cause the death benefit to become partially or fully taxable.
Tax-Deferred Growth of Cash Value
If you have a cash-value policy, such as whole life, variable life, or universal life insurance, the policy may accumulate value over time. This cash value grows on a tax-deferred basis, meaning you may not owe income tax on any investment gains as long as the money remains inside the policy.
Withdrawals and Loans from Cash Value
Policy Loans
You may also borrow against your cash value through a policy loan. Loans are generally not considered taxable income, provided the policy remains in force and is not surrendered. However, if the policy lapses or is surrendered with an outstanding loan balance, the loan may be treated as a distribution, resulting in potential income tax on any gains.
Withdrawals
The IRS allows you to withdraw up to the amount of policy premiums you’ve paid without triggering a tax liability.5
For example, if you’ve paid $25,000 in premiums, you may be able to withdraw up to that amount tax-free. Withdrawals above that amount may be taxable as income and could also reduce the cash surrender value and death benefit.
While accessing your cash value can provide flexibility, it’s important to note that loans and withdrawals can reduce the overall value of the policy, increase the risk of lapse, and affect future benefits. Loans taken against a policy's cash value will accrue interest.
Final Thoughts
While life insurance premiums are generally not tax-deductible for most individuals, the broader value of life insurance often lies in the tax-free death benefit it provides to beneficiaries. Even though premiums may not reduce your taxable income, certain policies can still offer additional tax advantages, such as tax-deferred growth or access to cash value.
If you're exploring the potential tax impact of your policy, a financial professional or tax professional can help you evaluate options based on your goals and situation.
Life insurance may support your financial strategy and provide added confidence in your long-term goals. Get a Free Life Insurance Quote
Frequently Asked Questions
Which life insurance premiums are tax deductible?
Can I write off my insurance premiums on my taxes?
Can self-employed deduct life insurance premiums?
Sources
- Internal Revenue Service. "Credits and Deductions for Individuals." https://www.irs.gov/credits-deductions-for-individuals.
- Internal Revenue Service. "Guide to Business Expense Resources." https://www.irs.gov/forms-pubs/guide-to-business-expense-resources#en_US_2019_publink1000208680
- Internal Revenue Service. "Group Term Life Insurance" https://www.irs.gov/government-entities/federal-state-local-governments/group-term-life-insurance?
- Internal Revenue Service. "Topic no. 452, Alimony and separate maintenance." https://www.irs.gov/taxtopics/tc452
- Internal Revenue Service. "Publication 525 (2024), Taxable and Nontaxable Income" https://www.irs.gov/publications/p525