What Is A Death Benefit? Is It Taxed?

A death benefit, also referred to as the policy proceeds, is the amount of money that an insurer pays to your beneficiary if you pass away during the policy term. Typically, the policy proceeds are paid in a single lump sum.
In most cases, the death benefit is not taxed. However, if your beneficiary opts to do something less common such as distributing the death benefit in installments while investing it, or including the benefit as part of an estate settlement, there could potentially be tax penalties for the beneficiary. Always double check with an accountant or financial advisor if you believe this applies to you or your beneficiaries.