10 life insurance tax facts you need to know

Ah, tax season: that time of year when clients and advisors alike are faced with a string of uncertainties and unanswered questions. How are single premium life insurance policies taxed? How can the generation-skipping transfer tax exclusion be leveraged using an ILIT? Find answers to these and other ponderings in our timely tax primer.

Q: Are premiums paid on personal life insurance deductible for personal tax purposes?

A: No. Premiums paid on personal life insurance are a personal expense and are not deductible.Internal Revenue Service (“IRS”) regulations specifically provide that “[p]remiums paid for life insurance by the insured are not deductible.” It is immaterial whether the premiums are paid by the insured or by some other person. For example, premiums paid by an individual for insurance on the life of his or her spouse are nondeductible personal expenses of the individual. Premiums are not deductible regardless of whether the insurance is government life insurance or regular commercial life insurance. Although life insurance premiums, as such, are not deductible, they may be deductible as the payment of alimony or as charitable contributions.