In general, the death benefit from a term life insurance policy isn't subject to income taxes when the beneficiary receives the proceeds as a lump sum. However, there are situations where taxes may be assessed. The beneficiary may choose to receive the death benefit as a series of payments over several years instead of a lump sum. If they select this payment method, the insurance company usually places the life insurance proceeds in an account that may accrue interest until the full benefit has been paid out. Beneficiaries will have to pay income taxes on any interest that accrues. Life insurance proceds may be included in the estate of the deceased. If the value of the estate exceeds the federal estate tax threshold, which was $11.7 million as of 2021, estate taxes must be paid on the amount that's over the limit. Some states also assess inheritance or estate taxes, depending on the estate's value and where the deceased lived. Some insurers offer accelerated death benefit riders that allow the policyholder to access part of the policy's death benefit while they're alive to help pay for expenses related to a terminal illness. If you use the policy's accelerated death benefit, you don't have to pay income taxes on the money you receive, but it will reduce the amount your beneficiary gets when you die.