If you receive life insurance proceeds because the insured person died, the proceeds are generally not taxable and do not have to be included in income. However, if part of your proceeds includes interest earned on the policy in excess of the death benefit, that amount should be included in your income, just like any other interest.

If a life insurance policy is sold or otherwise transferred for valuable consideration before the insured person dies, the proceeds, except for the consideration, are usually taxable to the beneficiary, unless the transfer qualifies for an exception.