Buying a life insurance policy can help provide additional funds for your beneficiaries if needed and help cover many of their expenses after you are gone. An advantage of using life insurance proceeds is that it is generally not taxable. Making sure it helps your beneficiaries the most requires optimizing your life insurance as part of your retirement planning.
Life Insurance Proceeds Usually Not Taxable
Most of the time, the Internal Revenue Service (IRS) says that life insurance income is not taxable for the beneficiaries of the deceased. You do not need to report it on your taxes.One exception is when you receive life insurance proceeds in payments, and the account earns interest. In that case, you will pay taxes on the interest earned. If you must report it, you can use either Form 1099-INT or Form 1099-R.