It may surprise you to learn that life insurance can help you with taxes in some cases. While deductions for this insurance are rare, there are a few situations where you might be able to get money back.
If you’re an employer that offers life insurance as a working benefit, for example, you can deduct the premiums you pay up to the first $50,000 per employee. If you or your company will benefit from the life insurance, though, such as your spouse being an employee, you may not be able to claim this exception.
Another special case is if you’re paying for someone else’s life insurance, such as an ex-spouse. If you have an alimony or divorce agreement that requires you to purchase their life insurance, you may be eligible for a tax deduction. Due to tax code changes, these agreements are only eligible for write-offs if they went into effect before 2019.
In short, while life insurance plans are usually not eligible for tax deductions, there are other ways they can help you with taxes.
Tax Benefits for Life Insurance
There are a few instances when life insurance can benefit your tax situation. Beneficiaries that receive your life insurance after your death do not have to pay taxes on the benefits. However, if they receive the benefits in installments, any interest that accrues will be subject to taxation.
If you have a permanent life insurance policy with a cash accumulation component, such as whole, variable or universal life insurance, you will not have to pay taxes on the cash growth. Cash dividends are also usually tax-free. In both of these cases, though, the money that is tax-free only equals the amount you’ve contributed to your life insurance fund. Anything over that is taxable.
Are There Other Insurance-Based Tax Deductions?
Although your life insurance payments are not usually tax-deductible, related types of payments may qualify. Some life events with tax-deductible payments include:
- Medical expenses.
- Health savings accounts.
- Disability insurance.
- Workers’ compensation.
- Self-employment deductions.
Explore Life Insurance With Strock Insurance
If you’re considering starting a life insurance policy, the best time to start is now. Strock Insurance is the best local insurance provider for anyone in Harrisburg, York, Lebanon or Camp Hill. We’ll help you understand your policies and provide home, car, business and life insurance for you. Contact us today to learn more about our services or inquire about insurance options we offer.