Is Life Insurance Exempt From Estate Tax? 
No , Life Insurance is not exempt from state or federal estate tax unless it is of an amount that is exempted by law . That amount varies by state for state estate taxes , and a few states do not have state estate tax -LRB- or inheritance tax -RRB- at all . The limit in 2013 for federal estate tax is $ 5,250,000 . If the estate is larger than that with life insurance proceeds included , federal estate tax will be owed on the amount that is not exempt . Life insurance that is properly set up in an irrevocable life insurance trust is not subject to estate tax . 