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.
Don’t wait until it’s too late. Help cover yourself and your family with affordable coverage from Aflac.
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:
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.
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
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.
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
Below, we will explore how personal and group accident insurance may be taxed:
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.
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.
Accident insurance may be worth it for the right person. Here are some reasons to consider an accident insurance plan:
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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1 Policygenius – What is Accident Insurance? Updated March 4, 2022. https://www.policygenius.com/disability-insurance/what-is-accident-insurance/. Accessed May 26, 2023.
2 The Balance – What is Accident Insurance? Updated February 22, 2022. https://www.thebalancemoney.com/what-is-accident-insurance-5219880. Accessed May 26, 2023.
3 Policygenius – Are Disability Insurance Premiums Tax-Deductible? Updated January 12, 2023. https://www.policygenius.com/disability-insurance/are-disability-insurance-premiums-tax-deductible/. Accessed May 26, 2023.
4 Internal Revenue Service – Life Insurance & Disability Insurance Proceeds. https://www.irs.gov/faqs/interest-dividends-other-types-of-income/life-insurance-disability-insurance-proceeds. Accessed May 26, 2023.
5 Internal Revenue Service – Frequently Asked Questions – Life Insurance & Disability Insurance Proceeds. https://www.irs.gov/faqs/interest-dividends-other-types-of-income/life-insurance-disability-insurance-proceeds/life-insurance-disability-insurance-proceeds-1. Accessed May 26, 2023.
Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.
Coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, coverage is underwritten by American Family Life Assurance Company of New York.
In Arkansas, Policies A36100AR–A36400AR, & A363OFAR. Policy A37000AR. In Delaware, Policies A36100DE—A36400DE, & A363OFDE. Policy A371AA & A371BA. In Idaho, Policies A36100ID–A36400ID, & A363OFID. Policy A37000ID. In New York, Policies NY36100- NY36400. Policy NY37000.
In Oklahoma, Policies A36100OK– A36400OK, & A363OFOK. Policy A37000OK. In Oregon, Policies A36100OR–A36400OR, & A363OFOR. Policy A37000OR. In Pennsylvania, Policies A36100PA-A36400PA. Policy A37000PA. In Texas, Policies A36100TX–A36400TX, & A363OFTX. Policy A37000TX. In Virginia, Policies A36100VA – A36400VA, & A363OFVA. Policies A371AAVA & A371BAVA.
Coverage underwritten by Tier One Insurance Company: In Delaware, Policy T37000. In Idaho, Policies T37100ID, T37200ID, & T37300ID. In Oklahoma, Policy T37000OK.
Tier One Insurance Company is part of the Aflac family of insurers. In California, Tier One Insurance Company does business as Tier One Life Insurance Company (Tier One NAIC 92908).
Group coverage is underwritten by Continental American Insurance Company (CAIC), a wholly-owned subsidiary of Aflac Incorporated. CAIC is not licensed to solicit business in New York, Guam, Puerto Rico, or the Virgin Islands. For groups sitused in California, group coverage is underwritten by Continental American Life Insurance Company. For individual coverage in New York or coverage for groups sitused in New York, coverage is underwritten by Aflac New York.
In Arkansas, Policy Forms CA7700-MP-AR, CAI7800AR, and C70100AR. In Oklahoma, Policy Form CA7700-MP(OK), CAI7800OK, and C70100OK. In Oregon, Policy Form CA7700-MP(OR), CAI7800OR, and C70100OR. In New York, Policy Form Numbers AF7700NY and AF70100NY. In Pennsylvania, Policy Form CA7700-MP(PA) 07, CAI7800PA, and C70100PA. In Texas, Policy Form Numbers CA7700-MP-TX, CAI7800TX, and C70100TX. In Virginia, Policy Form CA7700-MP(VA), CAI7800VA, and C70100VA.
Coverage may not be available in all states including but not limited to DE, ID, NJ, NM, NY, or VA. Benefits/premium rates may vary based on plan selected. Optional riders are available at an additional cost. The policy has limitations and exclusions that may affect benefits payable. Refer to the policy for complete details, limitations, and exclusions. For costs and complete details of the coverage, please contact your local Aflac agent.
The content herein is provided for general informational purposes and is not provided as tax, legal, health or financial advice for any person or for any specific situation. Employers, employees and other individuals should contact their own advisers about their situations.
Aflac WWHQ | Tier One Insurance Company | 1932 Wynnton Road | Columbus, GA 31999
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Aflac New York | 22 Corporate Woods Boulevard, Suite 2 | Albany, NY 12211