Is Life Insurance Tax-Deductible?

Many people are often unaware of the details involved in filing income tax returns, such as which payments are eligible for deductions and which are not. Did you know that you may be able to deduct life insurance from your income tax return?

Certain products sold by insurance companies meet specific requirements, allowing them to be deducted on tax returns. In this article, we explain everything you need to know.

Benefits of Having Life Insurance

Before examining whether life insurance can be tax-deductible, it’s helpful to review some of the advantages of having such a policy:

Financial Protection for the Family

For individuals who have not yet built a substantial financial cushion, taking out life insurance is a good way to protect their family in the event of the policyholder’s death.

✅ Surviving family members are assured of a sum of money to cover expenses such as mortgages, debts, and children’s needs.

Peace of Mind

For many people, life insurance brings peace of mind.

✅ It reassures policyholders that their family will not face financial hardship if they pass away.
✅ This sense of security is even greater when the policy covers cases of permanent total disability, which prevents the policyholder from working.

Access to Tax Benefits

In certain cases, life insurance can result in a tax deduction on your income tax (IRPF), offering potential savings.

 

Can Life Insurance Be Tax-Deductible? Situations Where It Is Possible

While it is possible to deduct life insurance in some cases, specific conditions must be met. Here are the types of life insurance that can be tax-deductible:

📌 Life Insurance with a Savings Plan

These policies are very similar to pension plans, as they are taxed similarly.

📌 To determine the deductible amount, you multiply contributions made to the savings plan by the marginal tax rate established for the plan.
📌 The maximum deductible limit is €8,000, though it can increase. For example, if a spouse earns less than €8,000, an additional €2,500 may be deducted.
📌 In Basque Country and Navarre, lower limits apply.
📌 When life insurance is linked to a savings plan, it should be recorded in box 26 of your tax return.

📌 Conventional Life Insurance

Conventional life insurance is only deductible if it’s linked to a savings plan or if you are self-employed.

📌 Self-employed individuals can deduct health insurance, disability insurance, and critical illness insurance for themselves, their spouse, and any children under 25 living at home.
📌 The maximum deduction is €500 per person.

📌 Life Insurance Linked to a Mortgage

Life insurance linked to a mortgage contracted before January 1, 2013, is deductible.

📌 You can deduct up to 15% of a maximum of €9,040 spent on home purchases.
📌 Example: If you pay €7,200 on the mortgage, €150 on life insurance, and €150 on home insurance, you can deduct 15% of €7,500.

 

How to Deduct Life Insurance

When including life insurance in your tax return, it’s essential to know who the beneficiary is, as taxation varies accordingly:

✔️ If you are the policyholder and the beneficiary: Declare the policy under your personal income tax (IRPF).
✔️ If someone else is the beneficiary: Report it under the Inheritance and Donations Tax.

Additionally, the payment method affects how it’s declared:

📌 Lump Sum Payout

Taxed on the difference between the received amount and the paid premiums:

• 21% for amounts less than €6,000
• 25% for amounts between €6,000 and €24,000
• 27% for amounts exceeding €24,000

📌 Annuity Payout

Taxed based on whether it is a temporary or lifetime annuity:

📌 For lifetime annuities, income is distributed over the first 10 years of payment.
📌 For temporary annuities, the following rates apply per year:

✔️ 12% if the annuity is for 5 years or less
✔️ 16% if it lasts between 5 and 10 years
✔️ 20% if it lasts between 10 and 15 years
✔️ 25% if the annuity exceeds 15 years

 

What Other Insurance Policies Can Be Deducted from Income Tax?

📌 Health Insurance

📌 Only self-employed individuals can deduct private health insurance for themselves and their family members.

📌 Car Insurance

Car insurance isn’t deductible on its own, but vehicle-related expenses can be deductible if the car is used for professional or business purposes.

✔️ Deductible expenses include:

• Insurance premiums
• Fuel
• Maintenance
• Tolls
• Parking

📌 To qualify, the vehicle must be registered under the business’s name or used exclusively for professional purposes.

 

📌 Retirement Insurance or Pension Plans

Pension plans and retirement insurance policies can be tax-deductible if they meet specific requirements.

📌 Currently, up to €1,500 in contributions to such plans can be deducted, or up to 30% of the taxable base of income tax.

 

FAQs

How to include life insurance in the tax return?

Life insurance linked to a mortgage should be reported in box 20 of the tax return, under the insurance premiumsection.

How to deduct home insurance?

Home insurance should be indicated in boxes 547 and 548, as it is considered an investment in a primary residence.

What insurance policies are deductible?

In addition to the mentioned policies, civil liability insurance and disability insurance are also commonly deductible.

How to declare life insurance payouts?

Life insurance payouts are considered occasional earnings and must be reported in box 210 of the tax return.