Life insurance and taxation

When considering taking out term life insurance, or insurance payable at death, you may have concerns about taxation. How will life insurance benefits be taxed? Will life insurance benefits be considered as inheritance? This article provides answers to questions about the taxation of life insurance benefits.

The most important thing to remember is that life insurance taxation will largely depend on whom you have selected as the beneficiary.

What should I pay attention to in the taxation of life insurance benefits?

The most important thing to remember is that life insurance taxation will largely depend on whom you have selected as the beneficiary. Life insurance taxation is always based on legislation valid at the time of benefit payment. Therefore, you should keep in mind that the taxation of benefits may change during the validity of your life insurance.

Are life insurance benefits considered as inheritance or as capital income?

Term life insurance benefits are subject to either inheritance tax or capital gains tax. If the beneficiary of your policy is your next of kin, they will have to pay inheritance tax on the benefit.

‘Next of kin’ includes spouse, children or grandchildren, adopted child or their direct heir, foster child and spouse’s child. The benefit will be subject to inheritance tax also if the beneficiary is the estate. A life insurance benefit paid to persons other than next of kin or the estate will be taxed as capital income.

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Are life insurance contributions tax deductible for businesses?

If you are an entrepreneur and take out life insurance for companies for yourself or your personnel, life insurance contributions are often tax deductible for your business. However, we recommend that you check the tax-deductibility directly from the tax authorities.

The taxation of life insurance benefits involves many aspects, such as who are the beneficiaries, what is the legislation in force, will the benefit be subject to inheritance tax or capital gains tax and whether the life insurance policy is personal or a life insurance for companies.

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