Deductibility of Insurance Premium Payments

April 8, 1976 BIR RULING NO. 002-76 Deductibility of insurance premium payments . This is in reply to your letter dated July 20, 1975, requesting a ruling on the deductibility of insurance premium payments under the following circumstances: "Example (1) The borrower has an outstanding obligation with a bank or financing firm of say P100,000.00. He then buys a life insurance policy of P100,000.00 so that if he dies, his outstanding indebtedness with the bank or financing firm is paid out of his insurance policy. "Example (2) A Corporation borrows money from a financial institution. As an added collateral the principal officers and/or stockholders of said corporation such as the President, Chairman of the Board, the Treasurer are insured so that if any of them dies, the proceeds of the Policy are paid to the Creditor." In reply, I have the honor to inform you that as regards Example 1, the premium payments of the borrower are not deductible from his gross income because it is not a business expense, the premium being paid on his personal life insurance policy (See Section 30(a) Tax Code. See also paragraph 5131,34 Am. Jur. 2d). As regards Example 2, the premiums paid by the corporation on the insurance policy covering the life of its principal officers and stockholders are likewise not deductible from the gross income of the corporation because the beneficiary is the creditor of the corporation and therefore, the corporation is indirectly a beneficiary. While it may be true that premiums paid on a policy covering the life of any officer or employee of the taxpayer or a person financially interested in the taxpayer's business can qualify for deduction, however, if the taxpayer is directly or indirectly beneficiary of the proceeds of the insurance policy, the premium paid on account thereof are not deductible from the gross income of the taxpayer. And even if the taxpayer is not named as a beneficiary, a deduction is barred if the taxpayer can borrow money on the policy; or can surrender the policy for cash; or the policy is used in the taxpayer's financial statement to obtain credit; or a creditor or the taxpayer is beneficiary. (See Philcox Investment Co.,3 T.C. 458; Phillips, 24 BTA 98(NA);dism'd (CA-DC) 10/23/33; Joy Floral Co.,7 BTA 800, rev'd on other grounds 29 F(2d) 865 cited in p. 356, par. 6132, 34 Am. Jr. 2d; see also pp. 355-356, pars. 6131, 6133-6134, 34 Am. Jr. 2d) cdt