How Is Life Insurance Taxed? 
Video Transcript : Today 's question is , How is life insurance taxed ? Well , if you use life insurance just for a death benefit and the death benefit proceeds are paid directly to the beneficiaries , generally speaking it 's tax free . If you 're using life insurance as an income play , as long as you keep the contract enforced for the life of the policy insured , those proceeds , whether it 's withdrawals to basis or policy loans to gain , also will be tax free . But if you are able to go ahead and use a permanent product , a cash value permanent product and you actually surrender the contract or it lapsed and there was gain in the contract , you will pay ordinary income tax on that contract on all the gain of the policy . So it 's important whether you use it for indemnification , to know the rules of engagement on taxes as well as if you 're using it for income . 