Taxation Of Life and Health Insurance
The death benefit is always paid to the beneficiary tax-free
Learn about the tax deductibility of insurance premiums. There is a separate section for group insurance.
Life Insurance
Since life insurance premiums are not tax deductible, the death benefit is tax-free. Tax-deferred growth is also available with tax-exempt life insurance policies.
In a nonexempt life insurance policy, the investment income is taxable annually as interest. So virtually all policies are tax-exempt.
Individual Insurance
| Type | Premiums Tax-deductible? | Benefit |
|---|---|---|
| Disability | Not tax deductible | Tax-free |
| Accident & Sickness | Not tax deductible | Tax-free |
| Life | Not tax deductible (exceptions) | policy values: depends on tax exempt status; death benefit always paid to the beneficiary tax-free |
Group Insurance
The employer must pay at least 50% of the premiums.
| Type | Premiums Tax-deductible For Employer? | Employer-Paid Premiums A Taxable Benefit? | Benefit |
|---|---|---|---|
| Disability | ??? | Tax-free | Tax-free |
| Accident & Sickness | ??? | Tax-free | Taxable in proportion to premium paid by employer (e.g., 60% paid —> 60% taxable) |
| Life | ??? | Taxable | Tax-free |
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