Are individual life insurance premiums tax deductible?

1. Personally-owned life insurance
   1. Premiums paid for personally-owned individual life insurance policies are a personal expense and are not tax deductible [IRC §262].
      1. The result is the same regardless of whether the premiums are paid by the insured or by someone else, such as a spouse.
   2. Premiums paid for individual life insurance included in a divorce decree or written separation agreement are, as a general rule, deductible by the payer and taxable income to the payee, unless the parties enter into a written agreement to the contrary [IRC §71].
   3. Retrieve:
      1. IRC §262
      2. IRC §71
2. Charitable deduction for individual life insurance premiums
   1. While personal life insurance premiums are not deductible as such, a charitable deduction may be available for premiums paid on a policy owned by a charity [IRC §170].
      1. A charitable organization or trustee of an irrevocable charitable trust must own the policy.
      2. The deduction is subject to the limits on deductions for gifts to charities:
         1. Cash payments “to charity” in the amount of the premiums will qualify for a current deduction of up to 50% of the donor’s adjusted gross income, with a five-year carryover [IRC §170(b)(1)(A)].
         2. The deduction for premiums paid directly to the insurer “for the use of charity” may be limited to 30% of the donor’s adjusted gross income, with a five-year carryover [IRC §170(b)(1)(B)].
   2. Retrieve: IRC §170
3. Business life insurance
   1. Employer-owned individual life insurance policies:
      1. As a general rule, premiums paid for employer-owned individual life insurance policies are not deductible as a business expense if the business is directly or indirectly a beneficiary under the policy [IRC §264(a)(1)].
   2. Employee-owned individual life insurance policies:
      1. If an employer pays premiums on an individual life insurance policy owned by an employee or third party:
         1. The premium payments are considered a bonus to the employee, who must report them as ordinary income [IRC §61(a)(1)].
         2. The employer can deduct the bonus payments as an ordinary business expense [IRC §162(a)(1)], assuming that the bonus, when combined with the employee’s other compensation, is considered reasonable (Reg. §1.162-9).
   3. Retrieve:
      1. IRC §264
      2. IRC §61
      3. IRC §162