Is Life Insurance Taxable? 
Life insurance that is not left to the estate is generally not subject to income tax . If you are the beneficiary and choose to receive payments over time , rather than in a lump sum , you may pay income tax on the interest that is paid to you by the life insurance company . Also , if the policy was a modified endowment contract , or had more cash value than the original face amount , there may be some tax consequences . Most people receive their benefits tax free . Life insurance left to the estate -LRB- either on purpose or by default , because no listed beneficiaries are alive -RRB- will be subject to probate expenses and taxes . Also , life insurance is subject to state and federal estate taxes if it exceeds the exempted amount and conditions . 