New Jersey Life Producer Practice Exam

What is the tax status of employer-paid life insurance premiums?

1. Partially tax deductible

2. Fully tax deductible

3. Not tax deductible

4. Tax credit eligible

The correct answer is: Not tax deductible

Employer-paid life insurance premiums are considered a non-deductible expense for tax purposes. When an employer provides life insurance coverage to employees, the premiums paid do not qualify as a deduction on the employer's tax return. This means that the cost of providing this insurance is not deductible, which can impact how businesses approach employee benefits. Furthermore, while the cost of premiums is not deductible for the employer, the death benefit received by the beneficiaries is generally non-taxable. This aspect shows that although the employer cannot leverage deductibility on their initial outlay for premiums, the eventual benefit to the designated recipients remains tax-free. Understanding the tax implications of employer-paid life insurance is crucial for businesses when structuring benefits and for employees in comprehending the value of benefits provided.