Is Term Life Insurance Payout Taxable? 
It does n't matter what type of life insurance policy you have , term or permanent , the death benefit proceeds are normally not taxed as income . If it is in force at the moment the life insured dies , the death benefit will pay out . In most cases , life insurance proceeds , the death benefit , are received income tax free by the beneficiary . This is a key feature of life insurance . Common exceptions include business-owned life insurance issued , or materially modified , after August 17 , 2006 which may be taxable unless specific steps are taken during time of application and annually thereafter to meet conditions which allow the proceeds to be income tax-free . Another exception is a tax trap where life insurance contracts with three parties involved may also have unexpected taxable implications . 