Are Life Insurance Premiums Tax Deductible?

| February 26, 2019

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Contrary to popular belief there are very few situations where life insurance premiums are tax deductible. While premiums on long-term investment vehicles like an HSA or IRA  are deductible, life insurance is a different story. It pays off, in the long run, to understand whether you qualify for these few situations. This can keep you out of hot water and give you peace of mind for tax season. Why aren’t life insurance premiums deductible? Essentially, if you deduct your premiums, it makes all of your death benefits taxable. If you still wind up deducting those premiums, then you can land yourself in a sticky situation that will cost you more money in the long run. Consider a person who has a million dollar policy. If they deduct their premiums from their income tax returns, then death benefits become taxable. This means their beneficiaries will have to pay roughly 30% in taxes, totaling around $300,000. In the end, this is $300,000 that they wouldn’t have to pay otherwise. Considerations like this drive home the importance of understanding your options, so you don’t leave costly mistakes for your family. In essence, not deducting the premium helps keep the benefits tax free.

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Thornhill Insurance are a proud family run business in their 35th year of trading with Brian Thornhill at the helm. Retaining quality service has always been the key, and through constantly evolving markets and products, we are confident that we have some of the best ranges of insurance policies available.

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