DEFINITION of 'Insurance Proceeds'

The benefit proceeds paid out by any type of insurance policy as a result of a claim. Insurance proceeds are paid out once a claim has been verified, and financially indemnify the insured for a loss that is covered under the policy. Insurance proceeds are sometimes paid directly to a care provider (as with health insurance), but usually are sent to the insured in the form of a check.

BREAKING DOWN 'Insurance Proceeds'

Insurance proceeds are tax-free in most cases, regardless of the type of insurance or policy. One exception is disability insurance, which is taxable to the insured as income if the insured used pretax income to pay premiums. Another is when a homeowner receives insurance proceeds for a damaged or destroyed home that exceed the property's adjusted basis. In this case, the profit is taxed as a capital gain unless a replacement property is purchased within the specified period of time.

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