Tax TreatmentQuestion 714 of 716
Premiums a business pays for key person life insurance are:
a.Fully tax-deductible to the business as an ordinary and necessary operating expense in every single year
b.Always taxable income to the employee
c.Deductible by the insured employee
d.Never tax-deductible, but the death benefit is generally received income-tax-free by the business
Explanation
Key person premiums are not deductible because the business is the beneficiary, but the death benefit it later receives is generally income-tax-free. The premiums are not the employee's income or deduction.
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PrepPass team · Verified against California Life & Health Insurance License Exam · How we review
Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)