Is there an exception to the rule concerning the non-deductibility of life insurance premium?

Answer 1

You never want to deduct the premiums of a life insurance policy. The reason for this is if you deduct the premiums then the benefits will automatically be taxable. You certainly would not want the proceeds to be taxable just to get a very small tax deduction for the premiums. One of the best things about life insurance is that the proceeds are not subject to income tax. The same thing applies to certain other types of insurance. If you purchase disability insurance at work the premium is paid with after tax money so that the benefits will not be taxable. It works the same way. If the premium is paid by the employer as a benefit of your employer or if a clerk deducts it before tax through a cafeteria plan by mistake then the benefits will be taxable for income tax if you ever get disabled.