Is Life Insurance Tax Deductible
Do you have a life insurance policy? Are you considering applying for one? You might be wondering whether life insurance is tax deductible.
At nowsure, we are one of the UK’s premier life insurance companies, also offering personal accident cover as a secondary service. We understand that it may be hard to think about your death. We aim to give you financial peace of mind over the future.
If you do not have a life insurance policy and want to find out more, please contact us on 0800 033 4187. Our experienced team will be happy to help.
Are Life Insurance Policies Tax Deductible?
The answer to this question will depend on the policy you have. There are situations in which you can gain tax benefits through your life insurance policy. It is worth reading through this section to find out if you can save money in the long run.
Life insurance premiums are not always tax deductible. However, there are some policy types that have tax benefits, including:
Keyman insurance (sometimes known as key person insurance)
If you are a business owner, you may be able to claim your life insurance premiums as a business expense.
We will go over some of the main types of tax deductible life insurance policies. In the meantime, if you have any further questions, get in touch with our helpful team today.
Keyman Insurance
Keyman life insurance is a form of life insurance provided by an employer. It is also known as key person insurance. It is one of many employee benefits that can help a business to reduce their taxes.
Keyman life insurance is granted to essential employees. For example, directors or the owner of the company. If a key person passes away, it could have a highly negative impact on the business.
With keyman life insurance, your company will pay your premium. And they will also be the beneficiary of your policy. A keyman policy is a cushion for the company, enabling them to carry on if an important person dies.
Keyman policies are usually tax deductible for the business if they pass the ‘wholly and exclusively test’. This means that when the money from the policy is paid out, it has to be used solely for the business. If this is the case, your life insurance premiums will be tax deductible, against corporation tax.
If the keyman policy benefits the business shareholder, it is not tax deductible. This is something you need to keep in mind.
Are Salary Sacrifice Schemes Tax Deductible?
There are also tax deductible life insurance policies available that aid the employee. These policies are often known as ‘salary sacrifice’ schemes, as the employee essentially sacrifices part of their salary by putting it elsewhere. This usually results in less tax and national insurance being paid overall.
Whilst life insurance is one major benefit, other work-based incentives that may be tax deductible as part of a salary sacrifice scheme include:
– Your work-based pension
– Childcare vouchers or workplace nursery schemes
– Cycle-to-work schemes
– Electric vehicle schemes
It is important to check the terms and conditions of your employee benefits, as some schemes may have different criteria you need to fulfil to gain tax relief.
Relevant Life Insurance
Relevant life insurance policies are also popular options for businesses. A relevant life policy is a policy taken out by a business to provide life insurance for an employee, and it is similar to a group life scheme.
What Is a Group Life Scheme? |
| A group life scheme is a type of life insurance that is sometimes known as a ‘death in service’ benefit. If you die whilst working for a company, a lump sum is paid out to your beneficiaries. This is usually based on a multiple of your annual salary. The lump sum is tax-free, so long as it doesn’t go beyond the lifetime tax-free allowance. |
However, relevant life insurance is a little different. These policies are an alternative way for businesses to provide life insurance to their employees, and often cover a larger amount. These policies are paid for by the business, giving the employee free life insurance coverage.
Employees do not need to pay tax or National Insurance on relevant life insurance premiums.
How Can Business Owners Earn Tax Relief from Life Insurance?
Some of the points laid out above may help business owners to reduce their tax bill. For example, purchasing keyman insurance can provide corporation tax relief, so long as the life insurance payout solely benefits the company.
However, there are several other tax-deductible business expenses that you may be able to take advantage of. If you are a business owner, you may be able to reduce your taxable income by purchasing life insurance through your company. Life insurance premiums can be expensed through HMRC if you follow the correct protocol.
If in doubt, speak to your accountant.
Protect Your Financial Future Today with nowsure
If you are considering taking out a life insurance policy, it is important to check if there are any tax deductions you can benefit from, as they may help to save you money in the long run.
At nowsure, we are an experienced life insurance provider, specialising in quality, no-hassle insurance. We aim to be as transparent as possible when dealing with your finances, differentiating ourselves from our competitors. As well as life insurance, we also offer accident cover, so you can ensure safety and security for your family long into the future.
If you would like to find out more about our life insurance policies, please get in touch with our helpful team today.
