In most cases, life insurance premiums are not deductible for businesses.

This is true whether the business is paying the premium on a policy for an employee, a director, or an owner.

‘But, it's a business expense…’

If life insurance is used specifically under a buy-sell agreement or as collateral for a business loan, it makes sense to want to deduct the costs through the business, especially if it's required.

However, the premiums are not deductible.

The IRS does not allow businesses to deduct these premiums because the business is seen as benefiting from the policy—particularly if the business is the beneficiary of the policy. This rule ensures that there's no double benefit since the proceeds from a life policy are not included in income.

Exceptions Where Life Insurance May Be Deductible

1. Employee Benefits: While life insurance premiums are generally not deductible, if your business provides group term life insurance to employees, this can be an exception. You can typically deduct premiums paid on group life insurance up to $50,000 per employee. However, any coverage beyond that amount might result in a taxable benefit to the employee, and premiums on that additional amount are not deductible.

2. Charitable Contributions: If your business donates a life insurance policy to a charity, you may be able to claim a deduction. But in an S-Corp, Charitable Contributions flow out to the owner anyway.

Life insurance is also used to build up cash value and not all of the premium payments go to the cost of insurance.

The amount that is deductible for life insurance is very limited. But when you get to the bottom of it, it is a personal expense (on your personal life), and never not a business expense except when for your employees.