Identification

• You will be faced with generally two types of premium-paying situations. Premium payments made for personal life insurance policies and premium payments for business life insurance.
  
  

Significance

• Deducting premiums is only allowed for business life insurance policies. Premiums for personal policies are generally not tax deductible.
  
  

Drawbacks

• By deducting premiums on your business life insurance policies, you reduce business income and taxes. However, the policy must be held outside of the business. This means an individual is the policyholder, not a business. When this is the case, the individual will have to pay the taxes on the premiums your business pays to the policy. This effectively increases the policyholder's taxes without increasing income.