Are Life Insurance Proceeds Taxable In Arizona? 
Life insurance proceeds in Arizona are not taxable if left to a beneficiary other than the estate . If the estate is the beneficiary , or if the named beneficiaries on the policy are no longer alive , income tax will apply . Federal estate taxes are charged if the life insurance proceeds plus the value of the estate exceed the exempted amount of $ 5,250,000 in 2013 . Only the excess amount is taxed . Arizona does not have a state estate or inheritance tax . 