What Types of Insurance are Tax Deductible?



I just received a solicitation in the mail for tax-deductible life insurance from one of the companies I currently represent.  Who doesn’t love a tax deduction, right!?  I immediately opened the letter, and saw pretty much what I thought I would see; that they were specifically targeting insurance for business owners.


The letter contained two statistics that I thought were interesting:


  1. Almost 70% of Americans surveyed fear that taxes are going up.
  2. Even among wealthy Americans, over 50% are apprehensive about out living their retirement assets.


What I found interesting about these two statistics were the 70% and 50% responses.  If they were to ask my group of friends, clients, and business associates, I am pretty sure that both responses would be hovering around the 100% mark.


It did get me thinking that maybe a clarification on what insurance policies the IRS does allow for tax-deductible purposes.  I found this list at www.about.com.


The IRS lists (in Pub. 535) the following as generally accepted premium deductions:


  • Credit insurance that covers losses from business bad debts.
  • Group hospitalization and medical insurance for employees, including long-term care insurance
  • Liability insurance.
  • Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients.
  • Workers’ compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault.
  • Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law.
  • Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness.
  • Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. NOTE: Only if you use the actual cost method of figuring automobile expense – if you take the mileage deduction this is not applicable.
  • Life insurance covering your officers and employees if you are not directly or indirectly a beneficiary under the contract.
  • Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause.


You cannot deduct:


  • Amounts paid to set up a self-insured reserve.
  • Premiums paid on a sickness or disability policy that pays lost income in case of sickness.
  • Certain life insurance and annuity premiums.
  • Premiums paid on insurance to secure a loan.


These premium deductions and exclusions can be subject to any number of exceptions and this is a general list put out by the IRS. But, just because the IRS says it is so, even in a publication, does not make it so – just more likely that your deduction will not be challenged at audit. The IRS will also issue advisory opinions and “circulars” that define specific deductions and, in recent years, premiums benefiting owners or shareholders individually have been the target of such clarifications. If you are considering deducting premiums for a long-term care policy, health insurance, life insurance policy that benefits you as a business owner, be careful and get the guidance of a tax professional.


But, in most cases, these premiums will be considered a cost of business and can lead to significant tax savings.


Contact us to see if you can save money on your insurance by speaking to a professional independent insurance agent at Journey Insurance.


Let us sift through the hundreds of insurance programs to find you the most competitive rates available.  Let us do the paperwork while you spend your time doing something you actually enjoy!


Journey Insurance Agency * Irvine, California * 888.323.7480



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