Tax Facts

28 / When life insurance death proceeds are held under a settlement option, are excess interest dividends taxable to the beneficiary?

Yes,1 unless the proceeds are payable under a life income or installment option and the beneficiary is the surviving spouse of an insured who died before October 23, 1986. A surviving spouse of an insured who died before October 23, 1986, may exclude up to $1,000 annually of the interest (guaranteed and excess) received under an installment or life income option ( Q 71).




1.     IRC §§ 101(c) and (d)(1).


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