life insurance and taxes

Generally no, but it could happen. Who owns the policy, how the premums were paid adn who is the beneficiary can all make a difference. It is also possible that if the death proceeds are includible in the insured's estate on death, then they could be subject to federal and state estate taxes, which taxes may have to be paid out of the proceeds. So, even though the benefciary may not be taxed directly, the death benefits could effectively be reduced and the beneficiary taxed indirectly. The easiest way to avoid this problem is to have the life insurance policy owned by an irrevocable life insurance trust, with the trust as the beneficiary. Then, the terms of the trust can dictate who is to receive the death benefits.