Question

an individual purchased a variable life insurance policy 10 years ago with a guranteed death benefit of 100k. annual premium for this policy was 2,000 per year. the individual dies and, due to outstanding performance of the seperate account, leaves a death benefit to the beneficiary of 121,000. what are income taxes to beneficiary?

Answer 1

Life insurance proceeds paid to a beneficiary as a result of the insured's death are generally not subject to income tax, so the beneficiary would owe no taxes on the $121,000 death benefit received.

Step-by-step explanation:

The income received by the beneficiary from a life insurance policy death benefit is generally not subject to income tax. Therefore, when the beneficiary receives the $121,000 death benefit from the variable life insurance policy, they would not owe any income taxes on this amount.

The key reason for this tax treatment is that life insurance proceeds paid out due to the death of the insured are considered to be a return of premium and are meant to help beneficiaries cope with financial loss, rather than serve as income.