No. you don't have to pay tax on a life insurance death benefit. If a life insurance death benefit is paid to you in a lump sum or other than at regular intervals, include it in your gross taxable income on your tax return only to the extent it is more than the amount of life insurance death benefit payable to you at the time of the insured person’s death. In other words, if the life insurance death benefit is $50,000 and you receive $50,100 the $100.00 is taxable interest and you should include it on your tax return.

If the life insurance death benefit paid to you is not greater than the amount of the life insurance death benefit payable at death then it is not taxable and you should not include it on your tax return. In other words if the life insurance death benefit is $50,000 and you receive $50,000 there is no taxable interest to include on your tax return.

If you receive a life insurance death benefit in installments you can exclude a part of each life insurance death benefit installment from your taxable income on your tax return. Divide the life insurance death benefit of the policy by the number of years payments are to be received. That's the amount that is tax free each tax year.

Interest that you receive or that is credited to your account and can be withdrawn is taxable income and must be reported on your tax return. Taxable interest on your tax return includes interest you receive from bank accounts, loans you make to others, and interest from most other sources. The interest on your life insurance dividends is taxable in the tax year it is credited to your account and must be reported on your tax return if you can withdraw it in that tax year. However, if you can only withdraw the life insurance interest on the anniversary date of the life insurance policy (or other specified date), the life insurance interest is taxable and must be reported on your tax return in the tax year in which that date occurs.

Life insurance dividends are not taxable and you should not report them on your tax return.

If life insurance death benefits are paid to you in a lump sum or other than at regular intervals, include the life insurance death benefits in your gross income on your tax return only to the extent the life insurance death benefits are more than the amount payable to you at the time of the insured person’s death. In other words, if the life insurance death benefit is $50,000 and you receive $50,100 the $100.00 is taxable interest and you must report it on your tax return. The $50,000 in life insurance death benefits is generally tax free and you do not report it on your tax return. In other words, if the life insurance death benefit is $50,000 and you receive $50,000, there is no taxable interest and thus nothing to report on your tax return.

If you receive life insurance proceeds in installments you can exclude a part of each life insurance installment from your taxable income on your tax return because it includes both life insurance death benefits and life insurance interest. Divide the life insurance death benefits of the policy by the number of years payments are to be received. That's the amount that is tax free each year.

Life insurance dividends are tax free and you do not report them on your tax return. That's because life insurance dividends are a return of premiums that you previously paid for the life insurance policy and the life insurance dividends reduce the cost of your life insurance policy and are not taxable on your tax return until they exceed the net premiums you paid for the life insurance policy. Life insurance dividends, and interest on the life insurance dividends, on Veterans life insurance are tax free and you do not report them on your tax return.

Dividends on the common stock of a life insurance company, and interest on the corporate bonds of a life insurance company, are taxable and you must report them on your tax return.

If you deducted life insurance premiums in your business from your tax return and now receive life insurance dividends you should reduce your current tax years life insurance premium tax deduction on your tax return by the amount of the life insurance dividends, or claim them as taxable income on your tax return.