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Life Insurance proceeds taxable?

Posted in Life Insurance Payments over 3 years ago, 1 reply

A grieving friend who just lost her husband will be getting a payout from his life insurance policy. Will she have to pay any tax to teh federal government or state on that payout?

I'm trying to help her sort things out as she is too much of a wreck now to deal with these things.
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submitted by Kate in Seattle
Generally, if you receive the proceeds under a life insurance contract because of the death of the insured person the benefits are not taxable income and do not have to be reported. Any interest you receive would be taxable and would need to be reported just like any other interest received.

However, if the policy was transferred to you for valuable consideration, the exclusion for the proceeds is limited to the sum of the consideration you paid, additional premiums you paid, and certain other amounts. There are some exceptions to this rule.
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submitted by Byron Udell in Wheeling, IL @ July 17, 2008 - 10:13 AM
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