Are Life Insurance Benefits Taxable?

Life insurance is widely recommended as important financial protection in the event that a parent or other provider dies prematurely. However, the beneficiaries of a life insurance policy may not know how to proceed when it comes to taxes.

According to the Internal Revenue Service, life insurance proceeds received by a beneficiary are not taxable unless the policy was turned over to that person for a price. The IRS adds that interest income generated by life insurance proceeds may still be taxable.

The IRS website notes that some beneficiaries receive life insurance payouts in installments, while others receive them in a lump sum. For those receiving installments, an amount higher than the sum payable to the recipient at the time of the insured person’s death should be reported as income.

Another thing to consider is that for an employer-owned life insurance contract, proceeds that are more than the premiums and other amount an individual pays must also be reported as income.

Overall, life insurance policies can offer financial protection to families with young children, while also providing others with an opportunity to leave behind a significant charitable contribution.


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