There's no need to worry when it comes to taxes on your life insurance.
In general, you don't have to pay taxes on a life insurance death benefit.
But there are some exceptions.
You will have to pay taxes on life insurance death benefits if you receive
payments outside of regular intervals. For instance, if a loved one
has passed and you receive a lump sum payment from their death benefit,
you would want to include that lump sum payment in your gross taxable
income on your tax return.
You don't have to pay taxes on life insurance if the benefit paid to
you isn't larger than the death benefit payable at death. This means
that you would not have to include this information on your tax return,
since there is no taxable interest.
If you receive your life insurance death benefits in installments,
the government allows you to exclude part of each life insurance death
benefit installment from your tax returns. To calculate how much you
can exclude from taxes on life insurance, simply divide the benefit
of the policy by the number of years that payments are still to be received.
The result is the amount that is tax-free each tax year.
When it comes to taxes on life insurance, make sure that review your
tax laws so that you’re not caught off-guard when you begin receiving
death benefits.
