Does A Beneficiary Have To Pay Taxes On A Life Insurance Policy? 
Generally a beneficiary does n't pay income tax on the lump sum distribution of the proceeds of a life insurance policy . They are liable for any interest that might accrue which is particularly applicable if they elect a settlement option other than lump sum . If the policy is owned by the descedent , it is then includable in the estate and can be subject to either state or federal death taxes . 