You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey.
Bankrate follows a strict editorial policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.
We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.
is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service.
Insurance Disclosure
This content is powered by , a licensed insurance producer (NPN: 8781838) and a corporate affiliate of . LLC services are only available in states were it is licensed and insurance coverage through may not be available in all states. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.
Typically, beneficiaries on a life insurance policy will not be required to pay income tax when they receive a death benefit, but there are certain exceptions to this rule. Understanding all of the tax implications involving a life insurance policy can help beneficiaries make the best decisions about how to handle proceeds received from a life insurance policy.
Most people choose life insurance to protect their loved ones and leave them in a better financial place. But will the recipients of the policy be stuck with a tax liability?
Are life insurance proceeds taxable?
You may be wondering, “Is life insurance taxable?” The IRS states that proceeds from a life insurance policy are not generally considered gross income for the beneficiary. However, there are exceptions. For example, interest received by a beneficiary as a result of the insured’s death should be reported as income. A beneficiary may also need to report some of the payout as taxable income if they receive it in exchange for cash or something else of valuable consideration, up to the total amount of what was expended.
When the payout comes in installments instead of a lump sum
There are two ways the benefit can be paid – as a single lump sum or in installments. Some people prefer to receive money over time to avoid spending the full amount. But they should be aware that the interest is taxable.
Jonathan Holloway, co-founder of , a digital life insurance brokerage explains, “If the payout is paid 
in installments, the interest that accrues on the payouts is taxable. The death benefit is not taxable, only the interest on installments.”
If the beneficiary is an estate
If the policyholder names an estate as the beneficiary in a life insurance policy, the process gets more complicated. If the death benefit pushes the estate’s value over $11,700,000, your beneficiaries will have to file an IRS Form 706, also named the “United States Estate (and Generation-Skipping Transfer) Tax Return.” Leaving the proceeds to an estate adds to its value, which could lead to higher estate taxes for your heirs.
