You cannot deduct premiums on the following kinds of insurance.
- Self-insurance reserve funds.
You cannot deduct
amounts credited to a reserve you set up for self-insurance. This
applies even if you cannot get business insurance coverage for certain
business risks. However, your actual losses may be deductible. See
Publication 547.
- Loss of earnings. You cannot deduct premiums for
a policy that pays for your lost earnings due to sickness or
disability. However, see the discussion on overhead insurance, item
(8), under Deductible Premiums, earlier.
- Certain life insurance and annuities. For
contracts issued before June 9, 1997, you cannot deduct the
premiums on a life insurance policy covering yourself, an employee, or
any person with a financial interest in your business if you are
directly or indirectly a beneficiary of the policy. You are included
among possible beneficiaries of the policy if the policy owner is
obligated to repay a loan from you using the proceeds of the policy. A
person has a financial interest in your business if the person is an
owner or part owner of the business or has lent money to the business.
For contracts issued after June 8, 1997, you
generally cannot deduct the premiums on any life insurance policy,
endowment contract, or annuity contract if you are directly or
indirectly a beneficiary. The disallowance applies without regard to
whom the policy covers.
Partners. If, as a partner in a partnership, you
take out an insurance policy on your own life and name your partners
as beneficiaries to induce them to retain their investments in the
partnership, you are considered a beneficiary. You cannot deduct the
insurance premiums.
- Insurance to secure a loan. If you take out a
policy on your life or on the life of another person with a financial
interest in your business to get or protect a business loan, you
cannot deduct the premiums as a business expense. Nor can you deduct
the premiums as interest on business loans or as an expense of
financing loans. In the event of death, the proceeds of the policy are
not taxed as income even if they are used to liquidate the
debt.
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