In most cases, life insurance proceeds are received income tax free. If the proceeds are payable due to the policy endowing (or maturing) the gain (proceeds less premium paid) may be taxable.
Life insurance policies owned by an individual with proceeds payable to the estate of the owner may be subject to federal and / or state estate taxes.
Proceeds payable on a viaticized life insurance policy also may be subject to income taxes.
In addition to what Bob said, life insurance proceeds may be subject to federal estate taxes if they push the value of the estate beyond 5.25 million dollars (the exempted amount for 2013). Some states also have estate or inheritance taxes that can apply to life insurance proceeds.
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Life insurance policies owned by an individual with proceeds payable to the estate of the owner may be subject to federal and / or state estate taxes.
Proceeds payable on a viaticized life insurance policy also may be subject to income taxes.