Is Life Insurance Federally Taxable? 
Is life insurance federally taxable ? Depends . Life insurance usually is not subject federal income taxes as long as it is used and funded in the standard way . Life insurance cash values can be subject to income taxes if over funded creating a modified endowment contract . Some life premiums can be set up pre tax that create a taxable death benefit . There is a possibility of state and federal estate taxes depending on the size of the estate and ownership of the policy . 