Do I have to pay taxes on my death benefit?

Your death benefit is tax-free under most circumstances. There are a few situations when the death benefit will be taxed: If the insured or their family chooses not to have the death benefit paid out in one lump sum upon the insured’s passing and the life insurance company holds death benefit. By holding on to the death benefit, the death benefit will gain interest that is owed to the insured’s beneficiaries. This interest will likely be counted towards taxable income to the insured’s beneficiaries. If the life insurance beneficiary is an estate or trust and the total estate is greater than the current estate tax shelter at the time of the insured’s passing, the beneficiaries will have to pay estate taxes on the amount greater than the estate tax shelter.