There is usually no income tax paid on life insurance benefits in any state, including California. If the beneficiary is a person, life insurance bypasses probate. If the beneficiary takes the death benefit in installments, the interest only is taxable. Estate taxes are paid on life insurance, if applicable.
Founder, Abrams Insurance Solutions, Inc., San Diego, CA
There are 2 life insurance benefits that this question may be asking about: The death benefit or cash that has accumulated inside the policy. The death benefit is always income tax free in every state when received as a lump sum. Many insurance companies offer a larger death benefit if the benefit is received over time. If this is the case, then the additional benefit above the base death benefit would be taxable.
There are also living benefits in some life insurance policies when the policy is used to accumulate cash such as in an indexed universal life policy. In this type of policy, cash accumulates on a tax-deferred basis and can be removed from the policy tax-free as a policy loan.
Estate taxes may be due on life insurance benefits in some cases.
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There are also living benefits in some life insurance policies when the policy is used to accumulate cash such as in an indexed universal life policy. In this type of policy, cash accumulates on a tax-deferred basis and can be removed from the policy tax-free as a policy loan.
Estate taxes may be due on life insurance benefits in some cases.