How are term life insurance death benefit proceeds taxed?
Most term life insurance death benefits are non-taxable. However, they are subject to estate and inheritance taxes. These taxes can be avoided by establishing a Life Insurance Trust, where the trust is the owner of the policy. We recommend that you speak with your financial planner or attorney for advice on how to receive the most favorable tax treatment for your life insurance death benefit. Life insurance death benefit proceeds are generally not subject to income taxation provided they are paid in a lump sum; however, there a few exceptions to this rule. If a settlement option is used other than the lump sum option, then the interest earned on the principal death benefit is taxable. Although life insurance proceeds are generally exempt from income taxation, they are subject to estate and inheritance taxes. For more information on estate and inheritance taxes visit the estate planning section.
