What aspect makes a Key Person Disability Income policy unique in terms of business deductions?

A Key Person Disability Income policy is designed to protect a business from the financial impact associated with the loss of a key employee due to disability. One unique aspect of this type of policy is that the premiums paid by the business for this insurance coverage are non-deductible as a business expense.

This means that while the business pays for the insurance to protect itself against the financial risks associated with the prolonged absence of a crucial employee, it cannot deduct the cost of these premiums from its taxable income. This non-deductibility rule is essential because it relieves any concerns about double benefit; should a key person become disabled and the business receive tax-free benefits from the policy, it ensures that the business does not receive a tax advantage from the premiums it paid.

In contrast, other disability income policies may have different tax treatment regarding premiums and benefits. This makes the Key Person policy distinct in the realm of business deductions and helps business owners understand the implications of their investment in such insurance.