What Is The General Rule For Taxation Of Personal Life Insurance? 
Generally , life insurance proceeds are income tax free if left to a beneficiary that is a person or organization . Federal and state estate taxes can be charged if the life insurance proceeds of are sufficient amount to bring the estate over the exempted amount . The estate taxes may be paid by a separate life insurance policy , or taken out of the estate . The policyholder may stipulate whether or not the beneficiary needs to share in paying those . 