Most life insurance benefits do not necessitate paying income taxes. If you are the owner or beneficiary of a policy where the cash value is over the amount paid in, you may need to pay taxes on the gain.
Federal estate taxes, and possibly state estate taxes (depending on where you live) may be charged on the portion of the estate value above the exempted amount, when there is not a surviving spouse. The federal exemption is 5.25 million dollars.
The exceptions above represent a small percentage of life insurance policies. Life insurance is especially appealing because no tax is paid on most policies, ever.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
There are no taxes for owning a life insurance policy. If it increases in value, there are no reporting requirements. However, if you surrender the policy and the amount you receive exceeds the total of premiums paid, then you have taxable income. If you die, your beneficiaries will not have to pay income tax on the proceeds, however, the proceeds are includable in the estate/inheritance calculations which could generate a tax liability. There are other conditions where tax could be imposed but generally speaking life insurance proceeds escape taxation.
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Federal estate taxes, and possibly state estate taxes (depending on where you live) may be charged on the portion of the estate value above the exempted amount, when there is not a surviving spouse. The federal exemption is 5.25 million dollars.
The exceptions above represent a small percentage of life insurance policies. Life insurance is especially appealing because no tax is paid on most policies, ever.