Are life insurance death benefits taxable to my beneficiaries?

In most cases, a life insurance death benefit paid to a named beneficiary is received income-tax-free, one of the biggest advantages of life insurance. There are a few wrinkles. If beneficiaries choose to receive the money in installments, any interest earned on the held funds is taxable. If the policy is owned by you and paid to your estate, the proceeds can be counted in your taxable estate for federal estate-tax purposes, relevant only for very large estates above the IRS exemption, which changes over time. And a transfer-for-value of an existing policy can create income tax. For the ordinary case, name individuals directly and the death benefit arrives tax-free. Consult the IRS guidance or a tax professional for large estates or unusual ownership.