Is Life Insurance Tax Deductible For Self Employed?

If you are making money running your own business and you see great success you will want to know is life insurance tax deductible for self employed?

Similar to is life insurance tax deductible for self employed:

To answer the question, typically, life insurance coverage premiums aren’t deductible by self employed individuals or companies for tax purposes.


What About Special Cases?

Nevertheless, there are a few exceptions that are discussed below.

Speak to a tax professional to see how you can use this to your advantage.

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1. Life Insurance Policy Utilized as Collateral For Loan

Life insurance coverage premiums can be tax deductible if the is required as collateral security by a lender that’s a limited financial institution like a chartered bank and the interest on the loan would typically be claimed as tax deduction.


2. Charitable Donation

In case the life insurance coverage contract is donated to a charity, the premiums paid by the individual or business in order to maintain the policy can be claimed for tax purposes.

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Is Life Insurance Tax Deductible For Self Employed?

As we discussed, it is not tax-deductible for self-employed. But it is for a company.

The premiums would then be taxable to the employees and must be included in their income as a taxable benefit. Here are examples:

Ownership of Life Insurance Policy Via Corporation

A life insurance coverage contract might be owned by an individual or through a corporation.

The insured individual is usually the shareholder of the corporation whilst the corporation is the beneficiary and policy owner.

Many choose to own insurance contract utilizing a corporation as it’s a more affordable method of financing the insurance coverage premiums.

As premiums are paid with after-tax dollars and the corporate tax rate is lower, it’s usually a better strategy to use the corporation to own the insurance and policy fund the premiums.

A great advantage of owning life insurance coverage via corporation is that insurance proceeds might be paid out tax-free as capital dividends throughout the company’s capital dividend account.


What Are Segregated Funds and How Are They Taxed?

A segregated fund is an investment comparable to a mutual fund.

The securities held in this investment fund vary from stocks, bonds, or other assets.

The securities are held within an insurance policy and are subject to extra wealth protection.

Lifetime income benefit option – The investor will receive a lifetime income benefit option.

This will allow the retiree to better plan for retirement since he\/she will know the amount of funds to be received.

This may also protect the investor against risk of inflation or market volatility.

Guaranteed maturity date – The investor will also have a guaranteed maturity date that will allow people to better plan their retirement.

Designation of beneficiaries – Individuals can also designate beneficiaries through a segregated fund.

For tax purposes, the securities within a separate fund retain their character.


Key Man Insurance Alternative

It can be beneficial for the company to invest in key man insurance which is life\disability insurance and is intended to protect the company in the event of this individuals death or disability.

In summary, since the company might not survive without this key employee or individual, companies will usually invest in key man insurance to defend them from losses that might result in the case of the passing of a key employee.

Like the chief executive officer or president.

In the event of their death, the beneficiary will receive a death benefit to compensate him\her for the lost earnings or inefficiencies as a result of this key mans death.


Final Note

Finally, I hope this helps you to understand the answer to is life insurance tax deductible for self employed

As you can see, it can get very technical and switching to a corporation could be your best be to save money and leave a legacy.


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