Does The IRS Tax Life Insurance?

  1. 63333 POINTS
    Peggy Mace
    Most of the U.S.
    The IRS does not tax most life insurance with income tax. If a cash value policy is a Modified Endowment Contract, the cash value is taxed. And if there is interest paid to a beneficiary because they are receiving their life insurance proceeds on a payment plan, the interest is taxed. Also, money left to the estate is taxed. But as a general rule, if money is life to a person as beneficiary, that person does not pay income tax on the life insurance received.

    Estate taxes do apply to life insurance, if the amount of the estate is above the exempted amount.
    Answered on September 28, 2013
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