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Life insurance is it taxable or not taxable?

Here is what I think. 1- Non taxable if you paid the premiums out of your own pocket. So you get the proceeds and don't pay taxes Such as one of those Gerber life insurance policies 2. Taxable if it's through a company and it is a benefit that they paid the premiums with pre-tax dollars. So you pay taxes on the payouts(proceeds), since company pre-tax dollars were used to fund the monthly premiums --- Explain simplisticly - first time even this thought came accross my mind Question should have been life insurance proceeds.

Public Comments

1. life insurance proceeds are never taxable no matter who pays the premiums.
2. If the company is paying the premium there is no "pretax dollars". "pretax dollars" means it's pretax dollars out of your own earnings (i.e. paycheck). If the company paid the premiums it's just a standard business expense. If you are provided with more than $50K in insurance the company is required to charge you imputed income based on the government formula - this means money is counted as income but you don't really have the income. - If the company pays more than $2K for dependent life insurance coverage (spouse or children) there is also imputed income. The same process works if you are paying premiums as an employees as part of a Section 125 plan (i.e. pretax dollars). This means that your income will increase based on an imputed income formula, upping your annual earnings. If you pay the premium based on post tax dollars, there is no imputed income and your tax basis does not change. All life insurance premiums are paid out are non-taxable to the recipient.
3. Are you talking about when you cash it in, or when you die and the death benefit is paid out? If the death benefit is paid out to a person, the vast majority of the time, it's not taxable. If the death benefit is paid to the ESTATE, it becomes part of the estate, and can be subject to estate taxes. If you "cash it out", it can be subject to taxes, IF IF IF You get more money out, than you paid in. That's not going to happen for at least 30 or 40 years, with those gerber policies. You can't "cash out" life insurance through your employer - you're not the owner.
4. In the US life insurance settlements are not subject to income taxes. However, if those settlement proceeds become part of an estate which is subject to estate taxes, then those proceeds will also be taxable as part of the estate. I hope this helps. MyInsuranceXpert
5. Ok, two people mentioned counting it in the estate. If you own a life insurance policy and you die (regardless of who the beneficiary is - your own estate, brother, charity, guy down the street, etc...) then the dollars from the life insurance policy are added to your estate. PERIOD. The ONLY way to get them out of your estate is for you not to own the policy (i.e. have it owned in trust, have your brother own it....or the guy down the street) Now, whether it makes your estate subject to estate taxes depends on the size of the policy and your other assets. 99.9% of the time, life insurance proceeds are not income taxable. You can, however, own life insurance in a profit sharing plan and the proceeds would be taxable in that scenario when you remove the proceeds from the profit sharing plan.
6. The ownership of the policy does not matter once the insured person dies. If the beneficiary is the estate, then estate taxes maybe due, maybe. If the beneficiary is a named person then life insurance proceeds (also called the death benefit) are not taxable.