SBA 7(a) Q&A
Short answer
Generally, premiums paid for key-person life insurance are not tax-deductible for the business, but the death benefit received by the business is typically tax-free.
Since the business is the beneficiary, the IRS considers the premiums a non-deductible expense. However, the death benefit payout is usually exempt from income tax, providing a significant tax-free infusion of capital to the business when needed most.
A company pays $5,000 annually in key-person insurance premiums. These $5,000 are not deducted from its taxable income. If a $1,000,000 death benefit is later paid, the company receives the full $1,000,000 tax-free.
Last reviewed 2026-06-15 · SBA sources checked through 2026-06-15. DealRoom analysis of business life-insurance and SBA collateral-insurance practice (SOP 50 10 8). Not insurance, legal, or tax advice. Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
More on business life insurance & protection
Terms in this answer
← Browse all sba 7(a) questions
This page answers “What are the tax implications of key-person life insurance premiums and benefits?” for SBA 7(a) business buyers — a short answer, the detail, and official sources — from DealRoom.so SBA Intelligence. It is general information, not legal, tax, or financial advice, and DealRoom is not a lender.
Source: DealRoom.so SBA Intelligence, based on public SBA, lender, franchise, FDIC, and related records. DealRoom is not a lender and does not guarantee financing.
Pre-qualify your SBA 7(a) deal
Tell us the business, the price, and where you are — we'll point you to the lenders most likely to fund a deal like yours and flag anything that trips up approval.
Free · No documents · Usually same-day
Backed by data on 1,000+ SBA lenders and 300,000+ funded deals. Your details go only to lending partners you ask to be matched with — never sold to advertisers.