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Is Accident Insurance Tax Deductible?

Accidents can happen at any time, which may lead to physical, emotional, and financial stress. Accident insurance plans can help reduce this stress by giving you and your loved ones an added safety net to help cover medical costs and other expenses.

However, several pieces of the tax code deal with accident insurance premiums and proceeds. The tax code can be confusing, causing some taxpayers to miss potential insurance tax deductions or fail to report insurance-related income on their tax returns. This article will explain accident insurance, what it covers, and the tax consequences of different forms of accident insurance.

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How accident insurance works

Accident insurance is a type of supplemental insurance plan that pays a lump sum in case you experience a covered accidental injury.1 Insureds receive the payout if they become injured or disabled. There are two broad types of accident insurance:

  • Personal accident insurance: These are policies you purchase on your own through insurance providers. Rates may be higher than group accident insurance, but you have more flexibility in tailoring the policy to your needs.
  • Group accident insurance: These are workplace insurance plans many employers include in benefits packages. They may offer lower rates than personal accident insurance, but less choice.

Accident insurance is generally quite affordable.1 You can purchase standalone supplemental accident insurance through Aflac at reasonable rates to help protect yourself and your loved ones against the unexpected.

What does accident insurance cover?

Accident insurance helps with expenses from covered injuries or disabilities caused by an accident. These can include emergency situations to more common accidents. Here are some accident-related expenses that an accident insurance plan can help cover:2

  • Travel to the hospital
  • Medical expenses
  • Therapy costs
  • Rehabilitation
  • Funeral expenses in the case of death

Accident insurance alone may not cover all expenses if you’re out of work due to an accident However, you can use it alongside a disability insurance plan to help cover medical expenses while the disability plan helps with loss of income.

Is my accident insurance plan tax-deductible?

The IRS doesn’t allow you to deduct premiums you pay to maintain accident insurance coverage.3 The payout may be taxable if you have accident insurance through your employer and the employer pays for your coverage.4

Is my accident insurance plan taxable?

Below, we will explore how personal and group accident insurance may be taxed:

Personal accident insurance

The IRS generally does not tax any payouts you receive that are attributable to premiums you paid.5 Since you pay all premiums on personal accident insurance plans, the IRS may not tax any payout you receive from your plan. Therefore, you may not have to report any of the payout on your tax return.

Group accident insurance

According to the IRS, you must generally report any amount of payout attributable to employer-paid premiums as income.5 That means if you pay for all of your premiums, you may not have to report any payouts as income. If the employer pays all your premiums, on the other hand, you might have to report your entire payout as income.

If you pay your premiums through a cafeteria plan, and you don’t include the amount of the premium as taxable income to you, the IRS considers your premiums to be employer-paid.5 As a result, the full payout may be taxable.

There are several other IRS rules to be aware of. Working with a tax expert can help you navigate these rules and legally minimize your taxable income from your insurance payout.

Is accident insurance worth it?

Accident insurance may be worth it for the right person. Here are some reasons to consider an accident insurance plan:

  • Financial protection: Accident insurance could help cover injury-related expenses and help while you’re out of work.
  • Added peace of mind: Accidents can create a lot of distress for you and your family. Accident insurance can help provide security and added peace of mind by helping you protect yourself and loved ones.
  • Supplemental coverage: Accident insurance can be a great way to supplement health and life insurance, covering specific costs those policies may not cover.
  • Cost: Accident insurance premiums vary by many factors but tend to be fairly low.1

Get a quote for accident insurance today

Accident insurance can be a low-cost way to help protect your family, help enhance other insurance plans, and give you added financial peace of mind. However, it’s vital to understand the tax consequences of owning an accident insurance plan.

A tax expert can help you get the maximum allowable deductions for any insurance benefits you receive. As a result, you can enjoy the security of accident insurance even more. If you’re ready to get that extra financial safety net, speak with an agent today about guarding against the unexpected with accident insurance.

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