When it comes to life insurance, the general rule is that death benefits paid to the beneficiary are typically not taxable as income. This means that the beneficiary usually does not have to report the death benefit as taxable income on their tax return. However, there are some exceptions and specific situations where life insurance proceeds may be subject to taxation. One such exception is when the policyholder has chosen to receive the death benefit in installments rather than a lump sum. In this case, any interest that accumulates on the benefit between the policyholder's death and the actual payout may be subject to taxation. Additionally, if the policyholder has assigned the policy to someone else or if the policy is considered part of the policyholder's estate, there may be estate tax implications. It's important to consult with a tax professional or financial advisor to understand the specific tax implications of a life insurance policy in the event of the policyholder's death. In summary, life insurance proceeds are generally not taxed at the time of the policyholder's death, but there are exceptions and specific circumstances that may result in taxation.