Does life insurance get taxed? 
Life insurance can be taxed in certain circumstances . Here are some of the reasons that it can and can not be taxed . Life insurance can be taxed if you cancel a cash value policy , such as a whole life or universal life where cash value builds . When you surrender or cancel a policy all of the growth of the cash value is taxed as ordinary income . If you apply for a loan to borrow against your cash value and keep it in force , then that money is not taxed . Life insurance death benefits are usually not taxed regardless of whether the policy is cash value or term . Life benefit proceeds are passed directly to the beneficiary tax free and do not go through probate . However , in most cases if the beneficiary is left to the estate and the life proceeds go into probate , then the proceeds can be taxed as part of the estate . Both of these mistakes can be avoided with good planning before it is too late . 