Protecting employees is part of responsible risk and people management. Group life insurance can provide financial support to beneficiaries in the event of death and, where contracted, disability cover. Its usefulness should, however, be assessed together with its cost and its accounting and tax treatment.
In brief
- Group life insurance protects employees' families and can form part of the company's benefits policy.
- The Industrial Tax Code disallows the deduction of Life and Health insurance that does not cover employees generally — but general coverage alone does not guarantee deductibility.
- Risk insurance and savings (capitalisation) insurance have different purposes and tax regimes.
Can life insurance be an employee benefit?
Yes. Collective cover can complement a company's benefits policy and help protect employees' families.
Guarantees, exclusions, beneficiaries and eligibility conditions depend on the contract. And having insurance does not replace the employer's legal social protection obligations.
What does the Industrial Tax Code say?
Article 14 of the Industrial Tax Code includes insurance costs among the categories of potentially relevant expenses.
Article 18(1)(h), in turn, disallows the tax deduction of Life and Health insurance whose benefit is not granted to the company's employees generally.
Note: general coverage alone does not ensure deductibility. The company must demonstrate the link between the expense and its business, document it and meet the other legal requirements, notably those of Article 17.
Risk insurance or savings insurance: what is the difference?
Risk life insurance is essentially protective. Savings (capitalisation) life insurance may involve the accumulation of value and income.
For the income covered, Article 25 of the Tax Benefits Code (Law 8/22) provides for reductions in the Capital Gains Tax (IAC) rate:
- 50% for maturities between three and six years;
- 80% for maturities of more than six years.
This is not an automatic deduction of the premiums paid by the employer.
Before you go ahead: management and accounting considerations
Before introducing the benefit, the company should:
- define which employees are covered;
- identify the cover and the beneficiaries;
- analyse the total cost;
- set approval procedures;
- keep the supporting documents.
The accounting recognition and any taxation applicable to employees should be assessed according to the characteristics of the contract.
Conclusion
Collective life insurance can be a tool for protection and people management. Its possible tax effect requires a careful reading of the legislation and of the actual terms of the contract. Training accounting, tax and HR teams helps organisations make well-founded decisions.
Find out more: Accounting & Financial Reporting · Executive & Technical Training
References
- Law 19/14 of 22 October — Industrial Tax Code, Articles 14, 17 and 18, as amended
- Law 8/22 of 14 April — Tax Benefits Code, Article 25
Editorial note: this text is for information only. Applying it in practice requires confirmation of the legal, tax and contractual framework in force. DRDS Consulting works in training and technical capacity-building and does not sell insurance or financial products.