Do I have to pay tax on a life insurance death benefit?

Generally, no, you don't have to pay tax on a life insurance death benefit. If a life insurance death benefit is paid to you in a lump sum or other than at regular intervals, include it in your gross taxable income on your tax return only to the extent it is more than the amount of life insurance death benefit payable to you at the time of the insured person’s death. In other words, if the life insurance death benefit is $50,000 and you receive $50,100 the $100.00 is taxable interest and you should include it on your tax return.

If the life insurance death benefit paid to you is not greater than the amount of the life insurance death benefit payable at death then it is not taxable and you should not include it on your tax return. In other words if the life insurance death benefit is $50,000 and you receive $50,000 there is no taxable interest to include on your tax return.

If you receive a life insurance death benefit in installments you can exclude a part of each life insurance death benefit installment from your taxable income on your tax return. Divide the life insurance death benefit of the policy by the number of years payments are to be received. That's the amount that is tax free each tax year.

Related tax information about a life insurance death benefit

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Income Related Questions and Answers

IRS publications about a life insurance death benefit:
For more information tax about a life insurance death benefit received in installments refer to IRS Publication 525,

Taxable and Nontaxable Income. Also see IRS Publication 17,

Your Federal Income Tax. Please read this IMPORTANT Editor's Note regarding navigating IRS publications with Adobe Acrobat Reader.
IRS publications can also be ordered by calling 1-800-829-3676.

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