How Does Life Insurance Affect Taxes? 
If you receive a life insurance death benefit as the result of being a beneficiary on a policy , you will not have to pay income tax on it , in most circumstances . If the Insured person also owned the policy , and the death benefit brought the value of the estate over the limit exempt from estate taxes -LRB- $ 5,250,000 in 2013 -RRB- , estate taxes may need to be paid . 