Tax Free? Mostly.
Deductible? Rarely.
Know the traps. Win the conversation.
Two Different Questions
Tax-favored benefit does not mean tax-deductible cost. Split the two early.
When “Tax Free” Gets Taxed
Transfer for value
Policy sold? Benefit can turn taxable
Employer-owned
§101(j) paperwork or pay
Estate tax
Over $15M per person in 2026
Cash value
Surrender or MEC gains
Most of these are paperwork problems, not product problems. Ask before you design.
Sell the Policy, Lose the Exclusion
Policy changes hands
For money or value
Exclusion limited
Only what the buyer paid, plus later premiums
Exceptions exist
Reportable policy sales narrow them since 2017
Any buy-sell, sale, or settlement? Pause and call case design first.
Employer-Owned? Three Boxes to Check
Notice
Tell the insured in writing
Consent
Get written consent
Before issue
Done before the policy is issued
Miss the boxes and the death benefit above premiums paid can become taxable income.
Can the Business Deduct It?
Key person policy
Business is the beneficiary
Executive bonus
Employee owns the policy
Group term
Employee benefit
Rule of thumb: if the business benefits, no deduction. Hand the owner to a CPA to confirm.
Three Questions, Every Case
Who owns it?
Who benefits?
Who signed off?
Owner, beneficiary, and paperwork answer most tax questions before they become problems.