1. 63333 POINTS
    Peggy MacePRO
    Most of the U.S.
    If states have inheritance taxes, yes, life insurance proceeds are subject to those. The death benefit of a life insurance policy is also subject to federal estate taxes. This year, 5.25 million dollars is exempt from federal estate taxes. Each state has their own guidelines as to what is exempt from state estate, or inheritance, taxes.
    Answered on October 30, 2013
  2. 5877 POINTS
    Stan Cox II
    Insurance Adviser - Broker, SC Insurance Services, Oahu, Hawaii
    One of the great things about life insurance is that the death benefit in NOT taxed when paid to a beneficiary that is a person. That is when the beneficiary is NOT an estate, which may then be distributed to beneficiaries. If the death benefit goes to an estate and is then distributed, then it may be taxed as inheritance or may be subject to estate tax if the total estate exceeds the threshold for estate tax.

    Typically death benefit paid to individuals are not considered as income or inheritance for the purposes of taxation.
    Answered on August 16, 2015
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