How Are Life Insurance Proceeds Taxed? 
Life insurance proceeds rarely incur any form of income tax . The proceeds can be taxed for estate and inheritance tax purposes . Life insurance proceeds are included in the gross estate calculations for all deceased individuals . Any gross estates that have a total value exceeding $ 5.25 million can be subject to US Federal Estate Tax . Additionally , some states impose either an estate tax or inheritance tax -LRB- or in some rare cases both -RRB- . These taxes have their own specific rules about the total amount and what might be taxable . You should consult additional resources concerning state specific estate and/or inheritance taxes for more information about how life insurance proceeds might be taxed in your state . 