What is the general rule regarding the taxation of death benefits payable to the beneficiary of a life insurance policy?

Death benefits payable to the beneficiary of a life insurance policy are generally not subject to income taxes. This taxation principle stems from the nature of life insurance, which is designed to provide financial support to beneficiaries upon the death of the insured. The Internal Revenue Code establishes that proceeds from life insurance policies are typically received free from federal income tax, allowing beneficiaries to access the full amount of the coverage without having to pay tax on it.

This treatment reflects the purpose of life insurance: to provide financial security and assistance during a time of loss. While there can be exceptions, such as if the policy was sold for a profit or if the death benefit is part of an estate that exceeds a certain value (which may trigger estate taxes), the general rule holds that the benefit itself is not taxable as ordinary income.