How are life insurance proceeds taxed?

Taxes, Insurance
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January 2017
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Great insurance proceeds payable to a named beneficiary (a real person) is free of federal income tax. So, 100% of the benefit is free.

However, if the life insurance death benefit is paid in installments instead of a lump sum, the interest portion (if any) is taxable. The principal is tax-free.

The insurance proceeds may be included in the taxable estate of the owner. Not to worry, though...the estate tax exclusion is over $5.3 million. So, estate taxes is a mute point for most people. Only if the net taxable estate (after certain deductions) is over $5.3 million would the family have to worry about estate taxes.

Good luck!

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