In which scenario would an employer NOT deduct life insurance premiums as a business expense?

The correct answer highlights a scenario where the employer cannot deduct life insurance premiums as a business expense because the employer is not the beneficiary of the policy. Generally, for life insurance premiums to be deductible, the policy should serve a business purpose that directly benefits the employer.

When an employer pays life insurance premiums and is not the beneficiary, those premiums do not qualify as a necessary or ordinary business expense associated with the employer’s operations. Instead, they may be seen as a personal benefit for the employee rather than a business one, which is likely why the IRS disallows the deduction in that situation.

In comparison, premiums for employee group policies typically can be deducted because they cover a group of employees and provide a business benefit. Likewise, key person policies are designed to protect the business by providing a benefit if a critical employee passes away, thus justifying their deductibility. Premiums paid for executive bonus plans can also be deducted since they are used to incentivize and retain key employees, contributing to the overall business interest.