Is Life Insurance Taxed When Paid Out? 
No , life insurance is not taxed when paid out , in most cases . There are some exceptions , such as when the beneficiary is the estate ; then the life insurance benefit will be subjected to the same taxes as the rest of the estate . If eligible by virtue of amount , life insurance be subject to estate tax . By and large , however , life insurance is not taxed when paid out , making it a very favorable gift to those who receive it . 