Co-Founder, Coastal Financial Partners Group, California
The life insurance death benefit is normally paid income tax free. The cash value in life insurance grows tax-deferred. Provided the life insurance contract is not a modified endowment contract, cash value can be withdrawn up to basis (premiums paid) without tax, subject to some limitations in the first fifteen policy years. Policy loans can be taken income tax free provided the policy is not allowed to lapse.
Agent Owner, Gilmore Insurance Services, Marysville, Washington State
It's going to depend on the situation and what you're doing to the policy. Normally the only tax involved in most life insurance policies is the taxes you paid on the premium dollars you used to buy insurance. This is the same thing for the money you spend on groceries or to pay bills. Your normal payroll taxes. The death benefit of most all life policies are also free from taxes.
There are going to be certain situations where taxes may be involved but they are rare.
Assuming you’re addressing death benefit proceeds, life Insurance is generally not taxed at death, but may be includable in the estate. There are also business scenarios, where the death benefit is paid to the corporation that may trigger ordinary income tax or be treated like a preference item which could also trigger the alternative minimum tax.
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There are going to be certain situations where taxes may be involved but they are rare.