What expense category does life insurance come under?

Life insurance is an important piece of your business's financial puzzle, but knowing how to categorize it in your expenses can be confusing. Let's break it down together.

Classifying life insurance expenses

When you're categorizing life insurance premiums in your business expenses, it usually depends on how the policy is used. Common ways to classify life insurance expenses include:

• Employee benefits: If you're offering life insurance as part of your employees' benefits package, you would typically record the premiums under employee benefits expenses.
• Insurance expenses: For policies that protect the business itself, like key person insurance on a crucial team member, premiums are usually categorized as insurance expenses.
• Risk management: Some businesses might categorize life insurance premiums under risk management or business protection expenses, reflecting efforts to safeguard the company's financial health.

Examples of life insurance expenses

Here are some examples of life insurance expenses and how they might appear in your accounting:

• Group term life insurance premiums: Costs for providing basic life insurance coverage to all your employees.
• Supplemental life insurance: Expenses when employees opt for additional coverage beyond the basic offering.
• Key person insurance premiums: Costs for insuring vital individuals whose loss would significantly impact your business.
• Whole life policies owned by the company: Premiums for permanent life insurance policies that the company owns.

For example, if your business pays $600 per month for a key person insurance policy on your top sales executive, that $600 would be recorded under insurance expenses in your accounting system.

Tax implications of life insurance expenses

Understanding the tax treatment of life insurance premiums is important:

• Non-deductible premiums: Generally, life insurance premiums paid by your business aren't tax-deductible, especially if your company is the beneficiary.
• Employee benefit exception: If the policy is part of an employee benefits package and your employees are the beneficiaries, premiums may be deductible as a business expense.
• Taxable benefits to employees: Premiums paid for employee policies might be considered taxable income for your employees, depending on the coverage amount and tax laws.

It's a good idea to consult a tax professional to ensure you're handling life insurance expenses correctly on your taxes.

Let Ramp automate your expense process

Managing life insurance expenses doesn't have to be a headache. With Ramp, you can automate the categorization, tracking, and management of all your insurance expenses. Our platform makes it easy to keep your accounting accurate and up-to-date, so you can spend less time on paperwork and more time growing your business.