No, Life Insurance is normally exempt from income tax.
If the policy is a group policy, only the first $50,000 is tax free.
If there is cash value above the face amount, that excess may be taxed as income; or if you take the life insurance in installments, the interest may be taxed.
If you surrender a policy, the amount of cash value in excess of the premiums you paid in might be taxed.
If your policy is a modified endowment contract, loans and withdrawals will be taxed.
There may be a few other legalities, but by and large, when someone is named the beneficiary on a life insurance policy and when the insured person dies, the beneficiary will not have to pay any income taxes on the death benefit received.
Insurance Advisor, Lordship Insurance Services, California
Under most situations, no. Life Insruance proceeds are not classified as income (for tax purposes) so the IRS does not tax the benefits as such.
This applies to the traditional way life insurance is purchased; a person buys a policy, names their spouse as beneficiary, person dies and spouse gets a check to cover funeral costs and help offset loss of income caused by death.
If life insurance is owned by a company (as in key man insurance) or through other means then it may trigger a taxable event. Consult with your accountant for more specific details.
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If the policy is a group policy, only the first $50,000 is tax free.
If there is cash value above the face amount, that excess may be taxed as income; or if you take the life insurance in installments, the interest may be taxed.
If you surrender a policy, the amount of cash value in excess of the premiums you paid in might be taxed.
If your policy is a modified endowment contract, loans and withdrawals will be taxed.
There may be a few other legalities, but by and large, when someone is named the beneficiary on a life insurance policy and when the insured person dies, the beneficiary will not have to pay any income taxes on the death benefit received.
This applies to the traditional way life insurance is purchased; a person buys a policy, names their spouse as beneficiary, person dies and spouse gets a check to cover funeral costs and help offset loss of income caused by death.
If life insurance is owned by a company (as in key man insurance) or through other means then it may trigger a taxable event. Consult with your accountant for more specific details.