Federal Estate Taxes

• Life insurance proceeds are exempt from federal estate taxes when the insurance is paid as a result of the decedent's passing.
  
  

State Inheritance Tax

• Some states impose a state-level inheritance tax on beneficiaries that is separate from federal estate taxes. These taxes are the responsibility of the beneficiaries, not the estate. Review your state's inheritance rules for more information.
  
  

Tax Liabilities of the Estate

• The decedent's estate will owe taxes on the amount payable prior to the beneficiary receiving the proceeds.
  
  

Tax Liabilities of the Beneficiary

• The proceeds of a life insurance policy are typically not subject to income taxes. The beneficiary does not need to claim the proceeds on her income tax return.
  
  

Insurance Proceeds Greater Than Death Benefits

• If a beneficiary receives more in life insurance proceeds than the amount payable on the decedent's death, he will owe income taxes on only the amount in excess of the amount payable.