Tax Implications of Insurance

Your insurance policies can offer essential financial protection from unexpected events and accidents. However, premiums can represent significant expenses and may also involve complicated tax implications. At Monroe-Kelly Insurance Services Inc, we’re happy to offer guidance on these potentially complicated and confusing subjects.

How Different Types of Insurance May Influence Tax

When considering your various insurance policies, it can be invaluable to understand how premiums may impact your taxes. Think about the following potential implications:

• Health insurance—Your health insurance premiums can often be deducted from your taxable income. Additionally, if you have coverage through an employer-sponsored group plan, your payments are often taken out of pretax income. Health savings accounts can also provide advantages, such as earnings can grow tax-free, contributions can be deducted and withdrawals for qualified health care costs are also not taxed.
• Homeowners insurance—Although your homeowners insurance premiums are not typically tax-deductible, you may be able to save on at least part of your costs under certain circumstances. For example, if you operate a home-based business or otherwise use part of your residence for work, you can deduct a portion of your premiums.
• Auto insurance—Tax implications of auto insurance may be similar to those involved with homeowners insurance. Although premiums for policies covering vehicles used only for personal use are not deductible, if you use your car for commercial means, you may be able to do so. However, a standard personal auto insurance policy may not cover vehicles used for business purposes, so you should first ensure you have appropriate coverage before concerning yourself with tax implications.
• Life insurance—Many types of life insurance can offer tax-related advantages. Permanent policies, such as whole life insurance and universal life insurance, typically include a cash value component that can grow in value over time. Taxes are often deferred as these investments grow and you may be able to borrow against your policy’s value tax-free.

We’re Here to Help You With Your Tax

At Monroe-Kelly Insurance Services Inc, our dedicated team can help you understand the nuanced relationship between your policies and taxes. Contact us today to learn more.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.