How are life insurance proceeds taxed?

Taxes, Insurance
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With very rare exceptions, life insurance proceeds are never taxed as ordinary income. However, they will be taxable as part of an estate. However, with the current estate tax exemption at $5.43 million, most estates will never owe an estate tax at the federal level.  You may have to check in whether in fact the state in which the decedent died has an estate or inheritance tax independent of the federal tax. I hope this helps and good luck.

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April 2016
November 2009