Written by · Reviewed by Smiths Insurance & KiwiSaver — licensed Financial Advice Provider (FSP712931) · Last updated 2026-10-20

Tax treatment of business-owned life insurance in NZ

Tax on business life insurance depends on who owns the policy and what it is for. Inland Revenue's published items say that when an employer pays for staff life cover, the premiums are generally deductible but attract fringe benefit tax or PAYE, and a death claim is not taxable income. We found no IRD item on key person or shareholder cover, so take those to an accountant.

In short

Who owns the policy decides the tax

A business life insurance policy is a policy that a company or other business owns, or pays for, on the life of an owner, shareholder, employee or other person it relies on. The tax result turns on three things: who is the policyholder, who is paid if there is a claim, and what the cover is for. Inland Revenue has published answers for two employer set-ups. For the rest it has no item we could find, and this page says so rather than guessing.

Set-up Premiums Death claim Source
Employer owns a term life policy for an employee's benefit Employer generally entitled to a deduction; no PAYE; fringe benefit tax applies Not taxable income of the employee or the estate QB 18/03
Employee owns the policy, employer pays the premiums Employer generally entitled to a deduction; premiums treated as salary or wages, so PAYE applies; no fringe benefit tax Not taxable income of the employee or the estate QB 18/02
Business owns cover on a key person and is paid the claim No IRD item found. Ask your accountant No IRD item found None
Cover set up to fund a share purchase between owners No IRD item found. Ask your accountant No IRD item found None
You own and pay for your own policy IRD lists income protection premiums as claimable where the payout would be taxable, and does not list life premiums "Generally excluded" IRD

QB 18/02 and QB 18/03 date from February 2018 and cover term life policies only. They do not say what happens when the business itself is the beneficiary.

How a business premium is tested for deduction

QB 18/03 sets out the general test. A deduction is allowed to the extent an expense is incurred "in the course of carrying on a business for the purpose of deriving assessable (or excluded) income" (Income Tax Act 2007, s DA 1), and s DA 2 limits it, for example for expenditure that is "capital in nature". For staff cover, IRD treats a life insurance premium for an employee's benefit as a business cost like salary or wages. Whether a premium for key person or buy-sell cover passes the same test is the open question. You may read that such premiums are not deductible because they are capital, or that they are deductible because they protect revenue. We could not find an IRD ruling that settles either, so we do not state one. Our pages on key person insurance and shareholder protection insurance describe how the cover works.

Key person cover is not one product

"Key person cover" can mean a lump sum on death, or a monthly benefit if the key person cannot work because of sickness or injury. Fidelity's underwriting guide describes its key person cover as "an agreed value monthly benefit" if the key person is "unable to work due to sickness or injury", which is a disability-type benefit, not life cover (Fidelity). IRD's item on employer-arranged sickness and accident cover says claim amounts under income protection policies "will be income under s CE 11", though some such payments can still be exempt income (QB 18/05). So two policies both called key person cover can be taxed differently. Ask the adviser and the accountant what exactly is being bought before you ask about tax.

Fringe benefit tax and PAYE

Who owns the policy decides which applies. When an employer owns the policy, IRD says the premium is liable for fringe benefit tax; when the employee owns it and the employer pays, the premium is treated as ordinary salary and wages and is liable for PAYE (IRD: Employee life insurance). QB 18/03 explains that s CX 16 specifically treats a "specified insurance premium" for life insurance on an employee, their partner or their child as a fringe benefit, and notes that the shareholder-employee exemption in s GB 32(2) and the look-through company exemption in s GB 32(2B) can apply when the benefit goes to someone associated with an employee. Whether either helps a particular owner-manager is a question for your accountant.

GST

Providing or transferring a life insurance contract is listed as a financial service in the Goods and Services Tax Act 1985 (s 3(1)(i)), and supplies of financial services are exempt supplies (s 14(1)(a)) (GST Act, version as at 30 June 2026). So the premium on a life policy does not carry GST. Other covers, such as income protection, are not covered by this page.

A company, a trust or an individual as owner

The owner's identity matters to the items above, but we found no IRD source on how a company-owned or trust-owned life policy is taxed beyond the employer cases. Insurers also set their own ownership rules. Momentum's Funeral Insurance requires the policy owner to be "a natural person (not a business, corporation, or any similar organisation)". Quick Life's wording says the owner is usually the person insured, and allows a parent or sibling with the insured's consent; it does not list a company. So neither Momentum product suits business ownership. Underwritten policies from other insurers separate the Policy Owner from the Life Assured (AIA). For trusts, see life insurance in a trust.

Questions to take to your accountant

  1. Who will be the policyholder: the company, a trust, the shareholders or the individual?
  2. Who is the life assured, and who is paid on a claim?
  3. Is the cover a lump sum on death, or a monthly benefit?
  4. What is the purpose: loan repayment, replacing a key person's profit, or buying out a shareholder?
  5. Does fringe benefit tax or PAYE apply, and does the shareholder-employee exemption help?
  6. Is there a shareholders' agreement, and does the insurance match it?
  7. How should the premium be recorded in the accounts?

Bring the policy schedule and the agreement.

Where Momentum fits

The buttons on this page lead to Momentum's own application for personal cover. Quick Life covers ages 18 to 65 for $50,000 to $300,000 per person, rising by 3% a year to a $500,000 cap, and excludes pre-existing conditions and suicide for the first two years. Funeral Insurance has a 24-month accident-only window. Neither is business cover. Momentum Life Limited has an A.M. Best financial strength rating of B (Fair); see its financial strength page. Plan details are on the Quick Life page, and the guaranteed acceptance hub explains how that type of cover works. For business protection, see business protection.

Frequently asked questions

Do you have to pay tax on life insurance payouts?

IRD says insurance payouts are generally excluded income. QB 18/03 says a lump sum death claim on an employer-owned term policy is not income of the employee or the estate. Income protection payouts are generally taxable.

Is life insurance tax deductible in NZ?

For a personal policy, IRD's list of claimable expenses does not include life premiums. For employer-paid staff cover, QB 18/02 and 18/03 say the employer is generally entitled to a deduction. See also life insurance and tax.

Is there GST on life insurance?

No. Life insurance contracts are exempt financial services under the GST Act.

Does fringe benefit tax apply?

It can. When the employer owns a term life policy for an employee, IRD says the premium is subject to fringe benefit tax.

Financial advice is provided by Craig Smith Business Services Limited, trading as Smiths Insurance & KiwiSaver, a licensed Financial Advice Provider (FSP712931). This page is general information, not advice, and not tax advice: speak to a chartered accountant. QuoteHub is a Momentum Life partner, and Smiths Insurance & KiwiSaver may receive a commission if you buy through our link; see our disclosure and how we are paid. Written by the QuoteHub Editorial Team from the sources below; last reviewed 20 October 2026.

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