A life insurance premium is your payment toward the cost of life insurance. An insurance provider can allow you pay your premiums monthly, quarterly, semi-annually, or yearly. But if like many people you are on a budget, how can you save money on life insurance premiums? Are life insurance premiums tax deductible?
Are Life Insurance Premiums Tax Deductible?
Generally, life insurance premiums are not deductible. The government views life insurance premiums as a personal expense—not a medical expense—so in most cases, you cannot include them in your deductions for taxable income. But at times, such as a business expense, your premiums may be tax deductible.
The IRS says that life insurance premiums are not deductible because they are not a medical expense that is “used primarily to prevent or alleviate a physical or mental disability or illness.” For information on what types of premiums are tax deductible, refer to Internal Revenue Service Publication 502, Medical and Dental Expenses.
What Are the Exceptions for Tax-Deductible Life Insurance Premiums?
- Life insurance purchased to secure alimony payments – If you purchase life insurance to ensure your surviving ex-spouse will receive continued financial support, the premiums may be tax deductible.
- Life insurance gifted to a charity – When a life insurance policy is gifted to a charity, a portion of the premiums may be tax deductible. For details, see an article published by the Planned Giving Design Center on charitable gifts of life insurance.
- Life insurance purchased by a business – A business may purchase life insurance for its officers or employees. The life insurance premiums may be tax deductible if the business is not a direct or indirect beneficiary.
If you think your life insurance policy may be tax-deductible, contact a tax advisor for an accurate evaluation. For additional information on life insurance and taxes, read out post Is Life Insurance Taxable?
Do You Want to Save Money on Life Insurance Premiums?
If you want to save money on life insurance, the Life Insurance Institute discourages looking for the lowest premium. A low premium can lead to buying the wrong benefits or not having enough coverage for your survivors.
Factors to focus on:
- Investigate the history and reliability of the insurance provider
- Consider group life insurance through your employer
- Ensure you are in good health to get better rates
- Compare prices from multiple insurance agents
- Determine if term insurance might be right for you
Where Can You Get Advice About Life Insurance Premiums?
You can get personalized advice about life insurance premiums by talking with an agent. In Raleigh, NC, John Hunt of Hunt Insurance can help. Call us for a free consultation and to ask about pricing.
Think you bought too much life insurance? LIMRA’s 2019 report shows that about 57 percent of Americans have life insurance. And 32 percent of those who have insurance only have group insurance, which is usually not enough. But what about your situation? Is the policy you purchased much more than you need?
How Much Insurance Is Too Much?
Several factors influence how much insurance you need.
- Your annual income – If you’re active in
the workforce and anticipate pay increases over the term of your insurance
policy, account for projected increases in your calculation.
- Additional income – Remember to include
social security income, rental property, real estate, investments, and other
funds that you’ll leave for your survivors.
- Existing policies – If you have any
existing policies, factor them in. Keep in mind that if you have a group policy
through your employer, it might not be valid if you change employers. Depending
on the circumstances, you may be able to convert the group policy to an
individual one, but the premiums after you leave the business can be costly.
- Current and anticipated expenses and debt
– Loans, credit card debt, mortgage payments, medical bills, health insurance
premiums, and other expenses–factored them into the amount of income you need
to leave your survivors. Funeral and burial fees can cost up to $10,000, so
include them in the equation.
- Burial/final expenses
- Caregiving for an aged or ill relative
- Business purposes
- Charitable gift
- Estate taxes/liquidity
- Family financial responsibility
- Funds for college education
- Income replacement
- Pay off mortgage
- Raising a child
- Replace a policy
- Supplement a group coverage plan
- Tax advantages save/invest
- Wealth transfer
- Multiply the highest number—your expenses or
income—by 10 to 15 – If you earn $60,000 each year—or if your family spends
that amount—your life insurance policy should provide at least $600,000 for
your family. Some families choose up to 15 times their income or expenses to
cover unexpected events.
Did You Overdo It?
If possible, purchase enough insurance to replace your
income and cover expenses for 10 to 15 years. If 10 to 15 times your expenses
or income is about $800,000 and you purchased a $3,000,000 policy—or multiple
policies that value that amount—you’ve probably bought too much life insurance.
Is It Too Late?
If you think you’ve bought too much life insurance, what can
you do about it now? Talk to a trusted life insurance provider or investment advisor
who can examine the terms of your plan and determine if you’re able to sell the
portion you don’t need. You might be able to turn some of the cost of the
premium into income.
Before you buy your next insurance policy, talk with an independent agent. You’ll receive personalized service and straightforward advice to plan for your loved ones’ future. Contact Hunt Insurance today.
The Affordable Care Act (ACA / Obama Care) enrollment deadline date is January 15, 2016 at 11:59 Pacific Time. The broader deadline to avoid paying a fine for not having health insurance is January 31, 2016. Although you’re not required to sign up, if you don’t, you’re subject to a fine. Depending on your circumstances and income, penalties can range from several hundred dollars to more than $1000.
If you’ve already enrolled, and you’ve done so before December 17, 2015, your coverage is effective January 1, 2016.
Having Trouble Deciding Which Healthcare Plan to Choose?
If you’re like many people, you have put off enrolling in health insurance because you’re not sure what to choose or how to work your way through the Healthcare.gov website. We can help.
Remember, the Healthcare.gov website is for people who don’t have medical insurance through a job, Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), or another source. This means that you are able to explore your options through an insurance carrier or an insurance agent.
The assistance of an experienced professional can simplify the process for you. You will be able to compare plans, costs, and decide which plan is best for you and your family.
Health Insurance – Some Factors to Consider
- What does the plan cover? – Find out if the plan covers services such as doctor’s visits, hospitalization, prescriptions, physical therapy, emergency care, orthopedic services, and other care you need or expect to need.
- Which providers can you see? – Many plans require you to go certain doctors or hospitals. If you go to a medical provider outside of the plan’s network of doctors, you will have greater out-of-pocket costs. Or you may be responsible for the entire costs.
- What are your co-pays and deductibles? – Determine how much you will have to pay for doctors visits, prescriptions, and other care. Will you have to pay a certain amount of medical expenses on your own before the plan starts to provide benefits?
- What about out-of-state care? – If you travel out of the state or out of the country, find out what your plan will pay if you need medical care.
There is a lot to consider, but an insurance professional can help you understand your options. Get assistance now to avoid ACA/Obama Care penalties for failure to enroll.
This post is sponsored by Hunt Insurance of Raleigh, NC.
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