Example: The owner of Acme Inc. applies for insurance to pay covered monthly overhead expenses. Premiums are deductible regardless of the type of business entity involved.
If the insured becomes disabled, benefits received are taxable, but since the business expenses which they cover are deductible, it's a wash. The owner (or the company, if assigned) receives benefits while the insured is disabled. The result? Overhead expenses continue to be met and the business stays open — all for just pennies on the benefit dollar.
If the businessowner lives for two years following the onset of disability, he or she either will have returned to work or it will be clear the disability is permanent. In that case, the person will sell (or have sold) the business and its assets.
Tax treatment
To review:
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