can life insurance be a business expense

Can Life Insurance Be a Business Expense?

As a business owner or partner, safeguarding the financial stability of your enterprise is paramount. One critical aspect often considered is life insurance, not just as a personal safety net but also as a strategic business expense. The question then arises: can life insurance be a business expense? Drawing on my extensive experience as a life insurance specialist, I aim to shed light on this topic, exploring different types of life insurance used by business owners and highlighting the advantages of each.

Life Insurance as a Business Expense: The Basics

Generally, the premiums paid on a life insurance policy are not tax-deductible as a business expense. However, there are specific circumstances and policy types where life insurance can play a crucial role in your business’s financial planning and risk management, providing substantial advantages.

1. Key Person Insurance

Key person insurance is a type of life insurance taken out by a business on the life of an essential employee whose death or incapacity would significantly impact the company’s operations and profitability. The business is the policyholder, pays the premiums, and is also the beneficiary.


  • Risk Mitigation: Provides a financial cushion to help the company recover from the loss of a crucial employee.
  • Stability: Ensures business continuity and protects employees and stakeholders from the immediate financial impact.
  • Investor and Lender Confidence: Enhances the credibility of your business, showcasing fiscal responsibility.

2. Buy-Sell Agreements 

Buy-sell agreements, also known as business continuation agreements, are formal arrangements between business partners outlining what happens if a partner leaves the business due to death, disability, or retirement. Life insurance policies fund these agreements.


  • Smooth Transition: Ensures a seamless transition of ownership and control, preserving the business’s value.
  • Fair Compensation: Provides the departing partner or their family with fair market value for their share of the business.
  • Financial Security: Protects the business and remaining partners from financial strain during the transition.

3. Executive Bonus Plans

Some businesses offer executive bonus plans where the company pays the premiums on a life insurance policy owned by an executive or key employee. The premiums are treated as additional taxable income to the employee, but the company can deduct them as a business expense.


  • Talent Attraction and Retention: Enhances compensation packages, aiding in attracting and retaining top-tier talent.
  • Flexible Planning: Offers additional retirement and financial planning options for executives.
  • Tax Efficiency: Provides a tax-advantaged way for businesses to compensate key employees.


While life insurance premiums are generally not deductible as a business expense, strategic utilization of specific life insurance products can play a pivotal role in your company’s financial resilience and long-term planning. Key person insurance, buy-sell agreements, and executive bonus plans stand out as valuable tools for business owners and partners, offering an array of advantages from risk mitigation and business continuity to talent retention and tax efficiency.

As a business owner or partner, it’s crucial to consult with a life insurance specialist and a tax professional to navigate these options and integrate life insurance effectively into your overall business strategy. This ensures that you reap the maximum benefits while adhering to tax regulations and safeguarding the future of your enterprise.