Health and Life Insurance

Category - Tax Issues

At what income tax rate is the beneficiary of a life insurance policy charged on the receipt of $100,000 in death benefit proceeds?
  1. 0%
  2. 28%
  3. 33%
  4. It depends on the beneficiary's individual income tax bracket
Explanation
Answer: A - The beneficiary of life insurance proceeds will not have to pay income tax on the receipt of life insurance death benefit proceeds - regardless of the amount that is received. The amount of death benefit proceeds could, however be counted for estate tax purposes when calculating the decedent's overall estate. Therefore, although life insurance proceeds are not subject to income tax, they could be subject to estate taxation.
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