How are the premiums for an individual disability income policy treated for tax purposes?

• A. Amount spent on premiums over 7.5% of gross income is tax deductible
• B. Partially tax deductible
• C. Fully tax deductible
• D. No tax deduction

Answer: (D)

Premiums for an individual disability income policy are not tax-deductible when paid with after-tax dollars in a personal policy. Since you’re paying with money that has already been taxed, no deduction is allowed on your tax return. A helpful companion fact is that the benefits you receive if you become disabled are typically tax-free, because they replace income that was already taxed. The tax treatment would differ for employer-paid or group coverage, where premiums may be paid with pre-tax dollars and benefits could be taxable.