Life Insurance Entry Bookkeeping Question

by Barni
(Maple Ridge, BC Canada)

Life Insurance

Life Insurance

Could you kindly clarify which account(s) should be debited when managing the monthly life insurance premium payments for the owner of a medium-sized company?

I understand that the bank account will be credited in this transaction, but I am uncertain about the corresponding debit side.

In this particular context, where the owner is the only one, would it be necessary to establish an asset account to depict the value of the life insurance policy?

If this is indeed the case, I'd appreciate it if you could provide an example to help me understand it better.

Let's consider a scenario where the monthly premium is $100, and the Death Benefit payout promised under the policy is $1 million.

How would these transactions be represented in our accounting books?

Thank you in advance for your assistance in this matter. Your guidance will aid in ensuring accurate and transparent financial management for our organization.

BB in Maple Ridge, British Columbia, Canada

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Jul 18, 2023
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starstarstarstarstar 		Paying an Insurance Premium
by: Stephanie

When paying an insurance premium for a life insurance policy, the account that should be debited is typically an expense account, specifically "Insurance Expense."

This is because the premium payment is considered an ongoing cost of doing business, rather than an asset. You're purchasing financial protection, not something of tangible or enduring value.

In your example, when you pay the $100 monthly premium, the accounting journal entry would be:

Debit "Insurance Expense" $100
Credit "Bank" $100
This reflects the cash (or bank) going out of the business (credit) and the rise in expenses (debit).

As for your question about the life insurance policy's value, it's important to understand that the policy's cash surrender value (if any) would be considered an asset, not the death benefit.

The cash surrender value is the cash amount offered to the policyholder by the insurance company to cancel the policy before its normal expiry.

However, if the policy is a term life insurance policy (as most are), it typically has no cash surrender value. Only policies like whole life or universal life might accumulate cash value.

In those cases, you'd need to track this as an "Insurance Cash Surrender Value" asset, adjusting annually or whenever the insurance company reports a change.

The death benefit of $1 million doesn't come into play in the accounting until it is paid out, at which point it becomes an inflow to the company and would be recorded separately.

Always get a 2nd opinion to make sure you're correctly accounting for these transactions as per local laws and accounting standards.

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Life Insurance Policies

by Donna
(NE)

Life Insurance Policies

Life Insurance Policies

I'm looking to seek some clarification regarding the possibility of writing off my life insurance premiums.

I typically file my taxes using the long form, and I'm curious whether these premiums can be considered as tax-deductible expenses in my particular case.

Are there specific conditions or requirements I need to meet in order to qualify for such deductions, or is this a standard benefit extended to all policyholders?

Any advice or insights you could provide would be greatly appreciated, as I continue to explore potential avenues for tax savings.

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Jul 18, 2023
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starstarstarstarstar 		Life Insurance Premiums
by: BB

Generally speaking, life insurance premiums are not tax-deductible for individuals in the United States.

This rule applies whether you are paying premiums for policies on your own life or the life of another.

The IRS does not consider life insurance premiums to be a deductible personal expense. However, there are certain exceptions under specific circumstances.

For instance, if you are self-employed and your life insurance is a part of a larger retirement plan, or if you are a business owner and the policy is in the business’s name and used as protection against the loss of a key employee, some portion of the premiums might be tax-deductible.

These situations can become complex and it's important to seek advice from a tax advisor to fully understand your particular circumstances and how tax laws apply.

Remember, tax laws can vary significantly depending on the jurisdiction, and they can change from year to year. It's essential to keep up to date with the most recent information and understand how it applies to your situation.

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