Tax Questions

Tax on proceeds from life insurance


How much tax on proceeds from life insurance do I pay?

See also Federal Income Tax on Life Insurance. Below is an example of how the federal income tax on life insurance proceeds work.


Your husband has an insurance policy which you are the beneficiary.

The face amount of the insurance policy is $75,000.

As the beneficiary, you choose to receive 120 monthly installments of $1,000 each.

tax on life insurance
Some of the life insurance proceeds are taxable while the rest are tax free.

The excluded part of each installment is $625 ($75,000 ÷ 120), or $7,500 for an entire year. The rest of each payment, $375 a month (or $4,500 for an entire year), is interest income to you.

Tax on proceeds from life insurance