Does life insurance get taxed? 
Broad questions deserve broad answers and so the question as to taxation of life insurance benefits is this : Generally , life insurance benefits are paid free of income taxation when paid to individuals . But , there are exceptions and possible complications to this simple answer . One big potential problem is when the decedent is also the policy owner and the life insurance gets added to the value of an estate and then taxed in that way . The IRS looks for incidents of ownership up three years prior to the death . Also , life insurance paid to an estate that is subject to other forms of taxation may result in the life benefits being taxed as well so it is n't always a good idea to pay life benefits to an estate . Also , life insurance after the first $ 50,000 is taxed when premium was paid by the employer . Life insurance you buy separately under group options are generally not taxed as income -LRB- provided all the rules are followed - see above -RRB- . Also , generally when a corporation pays the premium and the benefits are payable to the corporation , they ca n't write off the premium and collect the benefit free of income taxation . Under current law life insurance proceeds are only excludable up to the amounts of premium paid by the corpo in following with laws placed on the books in 2006 . There is a whole host of rules that must be followed to avoid taxation but it is possible that life insurance can be paid to a corporation and avoid taxation . While most of us will not be subject to taxation on the life insurance benefit it pays to understand how these benefits become taxable . Then , it is reasonably easy to avoid these pitfalls . Do n't also overlook the advice of a good agent and avoid the use of life insurance trusts to make sure the money moves to the beneficiary without taxation to the largest extent possible . 