Disability Insurance Benefits: Are they Taxable?

If disability insurance is part of your financial plan the choices you make now can affect the taxability of any benefits you receive later.

Here’s how your benefits would be affected. If your employer offers disability insurance as part of a job plan. The premiums are deducted from your paycheck before taxes. You are getting a current tax break in the form of excluding the premiums from your income. Later pay outs from your disability insurance policy benefits and generally taxable to you.

If you were to pay a portion of the disability premium with after tax-income and your employer pays the remaining portion of the premium, your policy benefits would then be split into taxable and nontaxable portions. For example: You pay 40% of the premium and your employer pays 60%. Benefits are 60% taxable.

However, if you opt to buy a policy yourself, premiums are not deductible on your personal tax return, and benefits you collect are not taxable.

Weighing your insurance options to ensure you will achieve your goal of protecting and growing your assets is must like the other aspects of your financial planning. We are here to help you establish a financial plan that works for you. Contact our office at (260) 497-9761 to schedule an appointment with our Advisors.