Frequently Asked Tax Questions And Answers
Keyword: Insurance Proceeds
4.9 Interest/Dividends/Other Types of Income: Life Insurance & Disability Insurance Proceeds
Are proceeds paid under a life insurance contract as defined in
IRC 7702 taxable and do they have to be reported as income?
Generally, if you receive the proceeds under a life insurance contract
because of the death of the insured person the benefits are not taxable income
and do not have to be reported. Any interest you receive would be taxable
and would need to be reported just like any other interest received.
However, if the policy was transferred to you for valuable consideration,
the amount excluded from gross income, pursuant to IRC 101 (a) (1), shall
not exceed an amount equal to the sum of the value of the consideration you
paid for the transfer of the policy and other amounts you subsequently paid
by the transferee.
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