Taxation of Premiums and Benefits for Disability Policies

Question 1

The individual owns the contract and pays the premium

Answer 1

• Premiums are not deductible

- Benefits are tax free to the employee

Question 2

The employee owns the contract and the employer pays the entire premium under a bonus arrangement like Section 162 disability insurance

Answer 2

• Premiums are deductible by the employer as a bonus

- Benefits are tax free to the employee

Question 3

The employee owns the contract and the employer pays the entire premium under a salary continuation plan (group plan)

Answer 3

• Premiums are deductible by the employer

- Benefits are taxable to the employee