Are Life Insurance Premiums Tax Deductible?
If you are considering purchasing life insurance, you are probably wondering “Are life insurance premiums tax deductible?” You may even be considering contacting an agent to help you find the best policy for your needs. The confusion and frustration associated with not understanding what is deductible or not can be overwhelming. When shopping around, you may get discouraged when you learn that some policies are not available because they are considered “high risk.” In addition to being unaware of what is in a policy and what is not, many consumers are also unsure as to how these policies work.
Understanding what is deductible and what is not can make life insurance shopping easier. First, let’s take a look at the term deductible. This refers to the amount that you must pay out of pocket before the insurance kicks in. You can’t deduct the actual premium payment, which would be the portion of your premium that you pay each month, but you can definitely deduct the pre-tax dollars you pay for things like mortgages and education. What are life insurance premiums tax deductible?
Your credit rating is part of your credit history, just as your home ownership status is considered a matter of public record. Insurance companies are allowed by law to inquire into your credit rating to determine your premiums. If your credit rating is poor or if it is otherwise low, you may have to pay a higher premium than someone who has a good credit score. However, if you do have a poor rating, there are ways to help reduce your premiums.
You may also be able to deduct your premiums from your gross income if you are self-employed. If you are married, there are various other exclusions that may apply. However, the two most common exclusions are age and military eligibility. These can both make you eligible for a lower-cost life insurance policy.
In addition to being able to deduct your premiums from your income, you may be able to get a discount on your policy. Life insurers are allowed to offer discounts to policyholders who have high enough deductibles on their policies. For instance, if you are older than 25, you may qualify for a discount based on your age. Or, if you have a history of tobacco use on your life, insurers may give you a discount for past policyholders. Exclusions like these can be very specific, so talking with an insurance agent about them is very important.
The next question to ask is whether the policy you are looking at is a “self-directed” or “traditional” policy. Self directed policies are those in which you are solely responsible for making your own premium payments. Some self-directed policies are also called “hybrid insurance policies.” Traditionally, the premium is paid by the insured party and the insurer pays the death benefit. These types of policies are more popular for people who do not want to become personally liable for their policy’s benefits.
If you are asking are my premiums tax deductible, you may also want to ask whether you need to pay your premiums upfront. Most insurance policies will allow you to make your premium payments when you first buy them. However, there are some policies that require you to begin paying your premiums right away. These types of policies often have much higher premiums than those that don’t require you to pay your premiums right away. Be sure to read your policy carefully so you understand what kinds of payments are covered under each policy.
When you are ready to find out are my premiums tax deductible, it’s a good idea to consult an insurance agent. There are many ways to obtain the information you’re looking for, but you may want to talk to someone who knows a lot about this type of coverage. You’ll likely be able to get an idea of which policies are most appropriate for your situation.