Insurance Policies for Directors: Welfare Is Difficult, Deductibility Uncertain for Key Man Policies

Insurance policies that a company takes out on the lives of its directors may serve very different purposes depending on the case. Some are granted to the director as a personal benefit, in favour of the director or the director's family members, and raise the question of whether they can fall within a corporate welfare plan. Others instead serve the company's own interest and, among these, key man policies have a particular role: through them the company protects itself against the loss of an essential figure, and the central issue is the deductibility of the insurance premium.

Policies in Favour of the Director and Corporate Welfare

For policies in favour of the director, or the director's family members, two routes must be distinguished, each governed by different rules. The first is welfare in the strict sense: art. 51, para. 2, letter f-quater), of the TUIR excludes from income the premiums for policies covering the risk of non-self-sufficiency (long term care) or of serious illness (dread disease). Since directors' fees are assimilated to employment income, the provision applies in principle to them as well, but only if the cover is offered to all employees or to homogeneous categories of employees and not ad personam (Circular no. 5/E of 2018), and only for benefits in favour of the insured person and not of the insured person's family members.

The second route is that of the fringe benefit. For all other policies the premium is deductible for the company but forms part of the beneficiary's income, unless it falls within the threshold of art. 51, para. 3, equal to EUR 258.23 and raised to EUR 1,000 (EUR 2,000 with dependent children) for the three-year period 2025-2027 by Law no. 207/2024. This threshold is a tax-free allowance on the value of the goods and services received and does not require them to be made available to all employees: it may therefore be granted to the director alone, with the caveat that, if the value exceeds it, the entire amount becomes taxable.

The problem of the homogeneity of the category therefore arises only for the first route. It is on this requirement that the Italian Revenue Agency, in its reply to ruling request no. 522/2019, denied welfare treatment for a board of directors of three members, only one of whom was remunerated: there was no homogeneous category, and the benefits granted to the unremunerated directors ended up performing a substantially remunerative function.

The welfare route is therefore narrow in the most common cases, with one or two directors who in practice coincide with the company, and becomes feasible with a structured board and a general plan that graduates the benefits by category; otherwise only the fringe benefit threshold remains, beyond which the premium is ordinary remuneration in kind, taxed in the hands of the director.

Key Man Policies and the Deductibility of the Premium

Key man policies are different: under them the company, as policyholder and beneficiary, insures itself against the economic consequences of the death or disability of an essential figure, typically the director. However, it is not enough for the company to be the beneficiary: according to scholarly opinion and lower-court case law, the insured person must genuinely be a key individual who is not easily replaceable, the policy must not be redeemable or have speculative purposes, and it must effectively transfer the risk to the insurer. The premium is then not remuneration for the insured person and the policy remains outside welfare; the problem of the deductibility of the premium itself in the hands of the company nevertheless remains.

On this point, scholarly opinion favours the affirmative view. Code of Conduct Rule no. 154 of the Milan Association of Chartered Accountants (Associazione dottori commercialisti) (14 January 2004) considers the cost to be inherent, because the death or injury of the director are adverse events for the company, which may suffer negative repercussions from the loss of the director's skills and knowledge; the indemnity is, by contrast, a taxable contingent gain (sopravvenienza attiva). In the same vein, opinion no. 7/2010 of the Labour Consultants' Foundation (Fondazione studi dei consulenti del lavoro) regards the opposite criterion of the Supreme Court as debatable: an inherent cost cannot be excluded from the income to which it contributes and, if the premium were non-deductible, the indemnity should not be taxed as a contingent gain, an outcome of which the opinion is doubtful.

The Supreme Court, on the other hand, has shown an unfavourable orientation, but the precedents cited do not concern a genuine key man policy. Judgment no. 28004/2009 dealt with accident policies in favour of managers, middle managers and clerical staff, provided for by a trade union agreement, with the company as beneficiary of the indemnity: the Court denied the deduction because the premiums, "although inherent in the management of the business", are not directed at the production of income. The same principle was applied to life insurance on the director (Supreme Court no. 19204/2017), with a notion of inherence that has since been superseded by the Court itself, which assesses it in relation to the business activity as a whole and not to revenues (Supreme Court no. 6368/2021).

Nor does judgment no. 24022/2024, often cited as confirming non-deductibility, concern a policy in the company's interest: there were two policies, life and accident, on the chairman of the board of directors, with family members and heirs as beneficiaries. The ground of appeal was declared inadmissible, the precedents are cited only as additional support and the taxation of the premiums in the hands of the chairman was not examined. On the basis of the rulings examined, the Supreme Court has therefore not yet expressly addressed a genuine key man policy with the company as beneficiary: the precedents concern employees (2009) and family members or heirs (2024).

Lower-court case law is largely favourable where the company is the beneficiary, on a case-by-case basis: Agrigento Provincial Tax Commission (Ctp) no. 1840/7/15 (it must be verified that the insured person is genuinely a key figure), Veneto Regional Tax Commission (Ctr) no. 1183/2/16 (inherence of death-benefit premiums in favour of the company), Piedmont Tax Court (Cgt) no. 1038/2022 (distinction between the insurance component, which is deductible, and the financial component).

Particularly useful is Veneto Second-Instance Tax Court (Cgt) no. 4/2026 (filed on 7 January 2026), because it shows how the beneficiary marks the boundary. An insurance agency had deducted a policy classified as key man, with accident and disability cover and a death benefit in favour of the spouses of the partners. The judges distinguished the two components: the first, protecting the company's operations, "may present aspects of inherence"; the second is "unrelated to the interests of the company", because it is a personal and family benefit, and they upheld the 50% adjustment of the premium. The key man policy is therefore not excluded in itself, but the part that benefits the partners' family members is.

Pending clarification from the Supreme Court, the issue therefore remains open and the risk of a challenge cannot be ruled out. The indications from scholarly opinion and lower-court case law suggest that the deduction is more defensible when the company is the sole beneficiary and the policy covers a genuine risk for the business, whereas for benefits intended for family members or heirs it appears more prudent to treat them as remuneration in kind of the director, taxed in the director's hands and deductible for the company (Rule no. 154 of the Milan Association).