I am the beneficiary of a life insurance policy (my position ~ Son)
Question Details: My mother recently passed away and left me the sole beneficiary of a small life insurance policy. Are the proceeds taxable to me? If so, at what rate?
In general, life insurance proceeds paid to you because of the death of the insured are not subject to federal income tax. To qualify for such favorable tax treatment, the life insurance contract must meet certain IRS requirements.
However, proceeds may be taxable in limited cases. For instance, if you receive the insurance proceeds in installments and interest is paid, the interest portion of the payment generated after the insured�s death is treated as taxable income. This is taxed at your ordinary income rate. The part of the installment payment that is classified as investment in the contract is not taxable, however.
