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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