Are life insurance premiums paid on key employees deductible?

Life insurance premiums paid on key employees are not deductible when the company is the beneficiary. This rule aligns with the tax treatment of life insurance premiums under the Internal Revenue Code. If a business takes out a policy on a key employee and is the beneficiary, the premiums paid are generally considered a nondeductible expense. The rationale behind this tax treatment is to prevent companies from receiving a tax benefit while simultaneously benefiting from the death of the insured employee, thereby securing a financial gain.

In contrast, premiums for policies where individuals other than the company are the beneficiaries or where the insurance serves a different purpose might have different tax implications. Thus, understanding the nuance of beneficiary designations is crucial in determining the deductibility of life insurance premiums.