Can I deduct life insurance as a business expense?

For many people, especially those who are self-employed or working in the gig economy, the line between a personal and a business expense is not always clear.

For example, take life insurance: While it provides financial protection for your loved ones, it’s also something any savvy business owner or self-employed person would want, because it can ensure expenses are handled in the event of their death.

So, is it a business expense? Or maybe more precisely, does the IRS consider the monthly premiums for a life insurance policy a business expense that a self-employed person can deduct on their taxes? Read on to find out.

Is life insurance a good idea for someone who is self-employed or on contract?

Let’s back up and start here. If you’re self-employed, is buying life insurance a good idea?

For most people, the answer is yes, especially if they have dependents who (ahem) depend on them to pay for things. If you are the primary breadwinner, and have a spouse or kids, and something happened to you, how would your loved ones pay for groceries, rent or mortgage, tuition?

Life insurance is an answer to that question. In exchange for a monthly premium, your insurer will pay your designated beneficiaries a death benefit in the event of your death. This money can be used for anything, including burial and funeral expenses. In general, a good rule of thumb is getting a policy worth 5 to 10 times your annual salary.

Some employers offer group life insurance to employees. For those employees, that insurance often isn’t enough to cover their needs. For self-employed people, of course, that isn’t an option (unless they get it through a spouse), but it’s another reason why life insurance takes on heightened importance — if you’re self-employed, you don’t even have group life insurance to count on.

For many people, term life insurance coverage is a good idea. That’s because it only covers the time when you need insurance — until you retire (and no longer draw a salary), or until you’re older and many larger expenses are paid off (like a mortgage or your child’s tuition). It’s also more affordable than other types of insurance, like permanent life insurance or whole life insurance.

You can get a free online quote from Haven Life in minutes, which is great because, if you’re self-employed, you’re probably not swimming in time.

Can you deduct life insurance premiums as a business expense?

Back to the matter at hand.

If you’re self-employed, freelance, or under contract, it might be an excellent idea to purchase life insurance. But unfortunately, deducting your life insurance premiums isn’t allowed by the IRS. (We stress that it’s still worth getting, even without the tax benefit.)

That said, if you’re self-employed and have employees, you might be able to provide group life insurance for your employees and yourself. If this is the case, you might be able to deduct it as a business expense. Talk with a tax advisor for advice tailored to your particular circumstance.

Haven Life Term Life Insurance

At Haven Life, we can get you started with an estimate of what you need to ensure those you leave behind are financially protected. We offer term life insurance policies of up to $3 million, available in term lengths of 10, 15, 20, 25, and 30 years that pay out in tax-free lump sums. Each of those policies is backed by MassMutual or its subsidiary, C.M. Life.

If you’re self-employed, you know how the lines can blur between work and personal life. It might not mean you get a tax break, but it does mean you can benefit from the peace of mind that a term life insurance policy can offer.