How does business entity type (S-Corp, LLC, C-Corp) affect life insurance planning?

Business entity structure affects how life insurance premiums are paid, how death benefits are taxed, and how buy-sell agreements are structured. Understanding these differences helps Nevada business owners structure coverage optimally.

For S-corporations, shareholder-employees may deduct health insurance premiums as self-employed health insurance, but life insurance premiums paid on behalf of more-than-2% shareholders are generally not deductible. Death benefits from employer-owned policies are tax-free to the business under IRC 101(j) if employee notice and consent requirements are met.

For LLCs taxed as partnerships, premium payments for key person insurance are generally not deductible, but death proceeds remain tax-free. LLCs have significant flexibility in structuring buy-sell agreements through the operating agreement.

For C-corporations, executive bonus plans (Section 162) are fully deductible as compensation. Corporate-owned life insurance (COLI) for informal funding of deferred compensation grows tax-deferred, with death proceeds generally tax-free.

Nevada has no state income tax, which simplifies some calculations compared to states with high income taxes. However, federal tax treatment is what primarily matters for business life insurance structuring.

Agents in our network work alongside business CPAs and attorneys to ensure life insurance structures align with your entity type for maximum efficiency.