By life insurance benefits do you mean death benefit?

Life Insurance Proceeds

Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract.

Proceeds not received in installments. If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death.

Proceeds received in installments. If you receive life insurance proceeds in installments, you can exclude part of each installment from your income.

To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. Include anything over this excluded part in your income as interest.

Installments for life. If, as the beneficiary under an insurance contract, you are entitled to receive the proceeds in installments for the rest of your life without a refund or period-certain guarantee, you figure the excluded part of each installment by dividing the amount held by the insurance company by your life expectancy. If there is a refund or period-certain guarantee, the amount held by the insurance company for this purpose is reduced by the actuarial value of the guarantee.

Surviving spouse. If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude up to $1,000 a year of the interest included in the installments. If you remarry, you can continue to take the exclusion.

Surrender of policy for cash. If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. You should receive a Form 1099-R showing the total proceeds and the taxable part. Report these amounts on Form 1040, lines 16a and 16b, or Form 1040A, lines 12a and 12b.

www.irs.gov

ok, thanks very much.

oh gee, this legalese is drving me crazy. you're saying the death benefits are not taxable and yet they've got to be included with your income. but your income IS taxable, so I am confused again.

<< Life insurance proceeds paid to you because of the death of the insured person are NOT TAXABLE unless the policy was turned over to you for a price. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. >> Not taxable, agree?

<< Proceeds not received in installments. If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income ONLY the benefits that are MORE than the amount payable to you at the time of the insured person's death. If the benefit payable at death is not specified, you include in your income the benefit payments that are MORE than the PRESENT VALUE of the payments at the time of death. >> Sounds too me like if you are getting anything MORE then the actual death benefit, like interest or smth..., then include it in you income.

<< Proceeds received in installments. If you receive life insurance proceeds in installments, you can EXCLUDE part of each installment from your income.
To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. Include anything OVER this excluded part in your income as interest.>> Again, if you will receive anything greater then death benefit divided by the number of payments (interest that you are earning on payments while it remains on account or else) THAT's what you report.

so if you're getting the lump sum, say $300,000, which is the amount of the entire life insurance, you don't report it, right? but if there is interest attached to it, say another $10,000, then report just the interest, right? does life insurance even bear interest?

Honestly, I don't know what kinda life insurance policys are out there in our days, may be there are some that do... in some way... The ones that I am familier with only have straight forward death benefit that is not taxable.

got it. thank you for your time.

Аноним,

Sorry, I don't do taxes, except my own. Ask an experienced accountant.


Игорь Громов
Адвокат
(312) 953-4801

No problem, Mr. Gromov, I got the drift. Thanks for your reply.