Are Life Insurance Benefits Taxable In California? 
There are 2 life insurance benefits that this question may be asking about : The death benefit or cash that has accumulated inside the policy . The death benefit is always income tax free in every state when received as a lump sum . Many insurance companies offer a larger death benefit if the benefit is received over time . If this is the case , then the additional benefit above the base death benefit would be taxable . There are also living benefits in some life insurance policies when the policy is used to accumulate cash such as in an indexed universal life policy . In this type of policy , cash accumulates on a tax-deferred basis and can be removed from the policy tax-free as a policy loan . Estate taxes may be due on life insurance benefits in some cases . 