Life insurance proceeds paid to a beneficiary are generally taxed how for federal income tax purposes?

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Study for the Louisiana Series 103 – Life, Health, and Accident or Sickness Insurance Exam. Familiarize yourself with key concepts through engaging questions and explanations. Prepare effectively for your exam!

Multiple Choice

Life insurance proceeds paid to a beneficiary are generally taxed how for federal income tax purposes?

Explanation:
Life insurance death benefits paid to a beneficiary are generally not subject to federal income tax. The tax code excludes the proceeds from the beneficiary’s gross income, so they are received tax-free. The main caveat is that any interest that accrues on the death benefit from the time of death until payment is taxable as ordinary income. Also, different rules can apply if the policy is owned by someone other than the insured or if the proceeds are paid to an estate, but the actual death benefit itself is normally tax-free.

Life insurance death benefits paid to a beneficiary are generally not subject to federal income tax. The tax code excludes the proceeds from the beneficiary’s gross income, so they are received tax-free. The main caveat is that any interest that accrues on the death benefit from the time of death until payment is taxable as ordinary income. Also, different rules can apply if the policy is owned by someone other than the insured or if the proceeds are paid to an estate, but the actual death benefit itself is normally tax-free.

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