How are life insurance proceeds taxed?

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4 weeks ago
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Life insurance death benefits proceeds are generally tax free.  If benefits are paid out in a lump sum this amount is not included in gross income.  Any interest received is taxable. 

Keep in mind, the death benefit amount is included in the estate of the deceased.  Therefore, the estate may be subject to estate taxes both at the federal and state levels.  If the owner of the life insurance is someone other than the decrease then the amount is not included within the deceased estate.  However, this type of policy structure has to incur more than 3 years prior to the date of death or the amount will be included in the policy owner’s estate for tax purposes.   

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