Business-owned life insurance tax rules govern the income-tax treatment of premiums, cash values, and death benefits when a business is the owner and beneficiary of policies on employees, owners, or key persons. Key provisions include Section 101(j) notice and consent requirements for employer-owned life insurance, rules on the deductibility of premiums (generally not deductible for policies where the business is beneficiary), and the tax treatment of death benefits and policy loans. Failure to follow EOLI rules can cause death benefits above premiums to become taxable income. Additional complexity arises when policies fund nonqualified plans, split-dollar arrangements, or buy-sell agreements, where both corporate and shareholder-level tax consequences must be considered.

Advisors apply business-owned life insurance tax rules when designing key-person coverage, buy-sell funding, and executive benefit plans. They coordinate closely with tax counsel to ensure that notice and consent forms are signed before policy issue, that proper records are maintained, and that ownership and beneficiary structures align with intended tax outcomes. Carriers and BGAs often supply EOLI compliance checklists and sample documentation. Advisors explain to business owners that, while premiums are usually not deductible, tax-free death benefits and tax-deferred cash value growth offer powerful planning benefits if rules are followed. Understanding business-owned life insurance tax rules is essential to avoiding costly mistakes and structuring insurance solutions that are both effective and compliant.