Can I deduct life insurance as a business expense?

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

Take life insurance for example: While it provides financial protection for your loved ones, it is also something that any savvy business owner or self-employed person would want to have, as it can ensure that expenses are handled in the event of their death.

So, is it a business expense? Or perhaps more accurately, does the IRS consider the monthly life insurance premiums 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 are self-employed, is it a good idea to buy life insurance?

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

Life insurance is the 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 funeral and burial expenses. Generally, a good rule of thumb is to get insurance worth 5 to 10 times your annual salary.

Some employers offer group life insurance policies to employees. For the employees, that insurance is often not sufficient to cover their needs. For the self-employed, of course, that’s not an option (unless they get it through a spouse), but that’s another reason why life insurance takes on increased importance – if you’re self-employed, you don’t even have group life insurance to count on.

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

You can get a free quote online 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 point.

If you are self-employed, freelance or under contract, buying life insurance can be an excellent idea. But unfortunately, it is not allowed to deduct your life insurance premiums by the IRS. (We stress that it’s still worth getting, even without the tax benefit.)

That said, if you are self-employed and have employees, you may be able to provide group life insurance for your employees and yourself. If so, you may be able to deduct it as a business expense. Talk to a tax adviser for advice tailored to your particular situation.

Haven Life Insurance

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

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