Officer Life Insurance

Chris Wittich

Many companies have life insurance on key employees and officers.  Kind of grim subject, but obviously if the key officers or shareholders get hit by a bus and dies, the company is going to have some rough times.  The life insurance proceeds can certainly help.  When the life insurance is owned by individuals, the premiums are not deductible on your tax return anywhere, and then accordingly the proceeds are not reportable on your tax return.  The same theory applies to businesses.  The officer life insurance premiums are not deductible so they are backed out as a “book expense not deductible”.  Then the proceeds would be recorded as “book income not taxed”.

In recent years the IRS came out with Form 8925 to report more information on life insurance contracts.  For any contracts issued after August 17, 2006 the form must be completed.  It lists the face value of the policy, the number of people covered, and the total number of employees in the firm.  The other key component is that the officer whose life is being insured by the company needs to sign a consent form indicating they are aware the company has taken out a life insurance policy and is the beneficiary of that policy.

It all seems relatively simple, but one misstep and the life insurance proceeds could become taxable.  The benefit of not being taxed on the value of life insurance proceeds should be enough to make sure that you dot those Is and cross those Ts when it comes to life insurance.  Don’t deduct the premiums, get the consent forms signed, file that Form 8925 every year and you should be fine.


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