Tax Facts

8773 / Are life insurance premiums paid by a partner for insurance on the partner’s own life deductible by the partner if the proceeds are payable to a partnership or to a copartner?

No, because of the general rule that premiums paid on any life insurance policy, or endowment or annuity contract, are not deductible if a taxpayer is directly or indirectly a beneficiary under the policy or contract.1 When a policy is purchased as key person insurance or to finance the purchase of an insured’s partnership interest, the insured’s estate and, therefore, the insured, will benefit from the policy.

Even if a partner takes out insurance on the partner’s own life and irrevocably designates a copartner as beneficiary to induce the copartner to leave the copartner’s investment in the firm, the insured partner is indirectly a beneficiary under the policy, and so the premiums cannot be deducted.2

1. IRC § 264(a)(1).

2. Treas. Reg. § 1.264-1.

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