Can I Deduct Life Insurance if I Am Self-Employed?
Being self-employed allows you the freedom to set your own hours and choose your own projects. However, it also comes with many expenses, including the cost of life insurance premiums. In the absence of an employer-sponsored insurance coverage system, self-employed professionals must be able to find and purchase the coverage they need to achieve the perfect balance of personal stability and financial security. Although many of the expenses you pay to operate your business are tax-deductible, most life insurance premiums are not. This is one example of a non-deductible expense that may still be an attractive option for self-employed professionals
Unless you have a life insurance policy specifically to protect your business assets or you buy policies for your workers, you usually cannot deduct life insurance premiums.
Premiums for Yourself
In most cases, the premiums you pay for life insurance policies intended to provide for your family in the event of your death are not tax-deductible, regardless of the account you pay them from, the size of the policy or the amount of the premiums. However, if you maintain a life insurance policy as a means of protecting your business assets, you may be able to deduct the cost of your premiums on Schedule C of Form 1040.
Premiums for Employees
If you purchase life insurance policies for your employees or officers, you can usually count the premiums you pay as operational expenses. To claim a deduction for these costs, include the full amount of the premiums with the business expenses you list on Schedule C. If, after totaling all of your business expenses, you have a net operating loss, you may be able to carry the loss forward to reduce future business income.
Possible Exceptions for Deductions
Though you can usually deduct the cost of premiums you pay for employee life insurance, you cannot deduct these premiums if you stand to benefit from the policy in any way. If you are the beneficiary of a policy held for an employee or officer, either directly or indirectly, the premiums you pay are not deductible as a business or personal expense. For example, if your daughter works for you and your wife is listed as a beneficiary on your daughter's life insurance policy, you cannot deduct the cost of the associated premiums.
Deducting Other Insurance Premiums
Although you cannot typically deduct life insurance premiums for policies that protect your life, you may be able to deduct the cost of other insurance premiums you pay when you are self-employed. For example, if you don't have access to an insurance policy from your spouse's employer, you can usually deduct the cost of any health insurance premiums you pay for your family members and yourself. You may also be able to deduct the cost of long-term care insurance.
Amanda McMullen is a freelancer who has been writing professionally since 2010. She holds a bachelor's degree in mathematics and statistics and a second bachelor's degree in integrated mathematics education.