Does A Beneficiary Pay Taxes On A Life Insurance Policy? 
Aside from being income tax free , life insurance proceeds can possibly be subject to state or federal estate taxes . The exempted amount is high at this time for federal estate taxes -LRB- $ 5,250,000 -RRB- and some states do not have any state estate or inheritance taxes . If the life insurance benefit pushes the estate over the exempted limit for state and/or federal estate taxes , whether the beneficiary helps pay those taxes would need to be determined . 