Taxation of Life Insurance
Treatment of life insurance buying would be incomplete without a discussion of the taxation of life insurance. This section discusses briefly the taxation of life insurance.
Federal Income Tax
Life insurance proceeds paid in a lump sum to a designated beneficiary are generally received income-tax free by the beneficiary. If the proceeds are periodically liquidated under a settlement option, the payments consist of both principal and interest. The component attributable to the principal is received income-tax free, but the interest is taxable as ordinary income.
Premiums paid for individual life insurance policies generally are not deductible for income-tax purposes. Dividends on life insurance policies generally are ...
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