1. 37376 POINTS
    David G. Pipes, CLU®, RICP®PRO
    Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
    Generally a beneficiary doesn't pay income tax on the lump sum distribution of the proceeds of a life insurance policy.  They are liable for any interest that might accrue which is particularly applicable if they elect a settlement option other than lump sum.  If the policy is owned by the descedent, it is then includable in the estate and can be subject to either state or federal death taxes.
    Answered on February 7, 2014
  2. 14231 POINTS
    Tom SheehanPRO
    Agency Owner, The Thomas G Sheehan Agency, 27 Glen Road Sandy Hook, CT 06482
    Life Insurance proceeds are non taxable when paid to the named beneficiary, or beneficiaries.  Now, once the beneficiary receives the proceeds, if they are subsequently invested or deposited into a savings account, for example, then any interest or other form of growth that the initial deposited money generates IS then taxable.
    Answered on February 7, 2014
  3. 0 POINTS
    Mack Dudayev
    CEO, InsureChance Inc,
    Life insurance payout is usually not taxable however if the policy was owned by the person of passing and the payout is above $5.34 million. Federal  estate tax will have to be paid. If the payout is below that or if the owner of the policy are the beneficiaries the estate tax will not have to be paid.
    Answered on February 7, 2014
  4. 21750 POINTS
    Jim WinklerPRO
    CEO/Owner, Winkler Financial Group, Houston, Texas
    Great question! There are cases where you might be liable for some estate taxes, but as far as income taxes go, no, your windfall from a life insurance policy is not taxable. This is one of the best reasons to own a policy - you can pass along money to help your survivors . Thanks for asking!
    Answered on May 5, 2014
  5. 616 POINTS
    Robert J Russell - Finalist for Broker of the Year 2015
    Broker Owner, InsuranceAgentsSelling.com, United States (Most States)
    Whenever the beneficiary receives the proceeds from a death claim, he will not pay taxes on that dollar amount. Example - $100,000 is paid to spouse, she will not pay taxes on that amount because life insurance is always a tax free benefit. My recommendation is to annuitize the benefit so that she will receive a monthly income. This way she will not be inclined to blow it all but can manage it over a long period of time.
    Answered on February 23, 2016
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