Why Is Life Insurance Taxed?

1. 

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   Peggy Mace

   Most of the U.S.

   Life insurance is not charged income tax, as a rule. If the policy is left to the estate, it is subject to the taxes and fees that apply to the rest of the estate. But if it is left to a person, that person does not have to pay income tax on the proceeds (except if the policy is a MEC, on interest earned, or some other situations).

   Answered on October 29, 2013

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2. 

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   Tom Sheehan

   Agency Owner, The Thomas G Sheehan Agency, 27 Glen Road Sandy Hook, CT 06482

   Generally speaking, Life Insurance proceeds are not subject to taxes nor are they attachable by creditors so long as the proceeds are paid to a named beneficiary. Proceeds may be subject to taxes and attachment if they end up being paid to the estate of the deceased for whatever reason. Thas it why it is very important to review these policies regularly to make sure that the intended terms and conditions are up to date. So the proceeds, if paid to a proper beneficiary, would not be taxable. However, if the beneficiary invests the proceeds, then any growth or accumulation that results would be subject to taxation.

   Answered on March 16, 2016

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