Help protect your family’s future. Enter your zip code to get your free quote today!

Get Your Free Quote

Is Life Insurance Taxable?

Life insurance death benefits aren't typically considered taxable income. However, there are some exceptions to this rule. Learn more about how life insurance benefits are paid out to beneficiaries and under what circumstances you may have to pay taxes on a policy's proceeds. 

Young family takes a mountain hike

How Life Insurance Payouts Work

When the insured dies, the policy beneficiary must file a death claim to the insurance company and submit a certified copy of the death certificate. After a review process is completed, the policy payout goes to the named beneficiary. 

In many cases, you don't need to worry about paying income taxes on a life insurance death benefit. However, there are a few circumstances in which life insurance proceeds may be taxable:

  • When interest is generated

If your policy pays out the death benefit in installments instead of one lump sum, the benefit will generate interest. Anything you make on that interest could be taxed.

  • When you haven't paid back an outstanding loan on a permanent policy

If you have a permanent life insurance plan — like whole life or universal life — it generates cash value over the life of the policy. One benefit of this feature is that you can take out a loan against that cash value. If you owe money on the loan and you terminate the policy or stop paying your premiums, for example, you could owe taxes on a balance that's greater than what you've paid into it.

  • When a death benefit is paid to an estate

Estate taxes are levied on large estates — $5.49 million per person in 2017. If your estate is above this threshold, an estate tax may be applied to your life insurance proceeds.

Understanding Taxation on Life Insurance Proceeds

Consult with a licensed insurance agent or tax professional when buying the policy to ensure your policy will produce the tax benefits you want, and that your beneficiaries get the full payout of your policy. An agent can advise you on different types of policies, cash-value accumulation and tax treatment of life insurance to get you the right policy for you and your family's needs.  

To learn more, speak with a licensed agent at 1-800-966-7169 or read through the guides below.

*Applications for insurance may be subject to acceptance by insurer. Rates and coverage amounts will depend upon the carrier selected.

Help protect your family’s future. Enter your zip code to get your free quote today!

Get Your Free Quote

Related Information

Are Life Insurance Proceeds Taxable?

Income to a life insurance beneficiary is not typically taxed by the federal government, but there are some exceptions if interest proceeds are involved.

Read More

When is Life Insurance Taxable? | IRS Rules Explained

Wondering if a life insurance policy can be subject to taxes? Usually it isn't, but there are a few exceptions.

Read More

Meeting Your Life Insurance Needs

Read some tips on how to determine what amount of life insurance is right for you.

Read More

The Benefits of Life Insurance

Wondering whether you need life insurance? Read on to learn whether it'd be a good idea to buy coverage for your loved ones.

Read More

Do You Have to Have Life Insurance to Get a Mortgage?

You don't have to have life insurance with your mortgage, but life insurance can help your loved ones make house payments after you die.

Read More

Define Whether Whole Life Insurance Is Right for You

Whole life insurance is a type of permanent life insurance that remains in effect for the policyholder's entire life, as long as the premiums are paid.

Read More

Deciding How Much Life Insurance You Need

Knowing how much life insurance you do need is dependent on your lifestyle, health, and income.

Read More

Calculating Your Life Insurance Needs

Use this step-by-step guide to calculate how much life insurance your family will need to sustain their lifestyle after you die.

Read More

How Do Term Life Insurance Payouts Work?

Generally, there are 3 main steps beneficiaries must take to receive a life insurance payout: file a death claim, provide proof of death and wait for approval.

Read More