Do we have to pay taxes on death benefits?

[mindy23]

Jurisdiction

Arizona

Out life insurance carrier was going to drop our coverage because it had come to term. When we contacted our agent, we mentioned that my husband would not be able to get any more insurance due to having terminal cancer. Unbeknownst to us, we had a terminal illness clause in his policy, and were able to get payment from the policy.
Now, we have gotten a tax notice from the insurance company, and we're worried we may have to pay taxes on the terminal illness payment, which was used to pay off our home.

 

[Betty3]

I worked for a life ins. co. Some of these terminal illness rider/clause pay outs can be taxable. It can depend on state law -- contact a tax advisor in your area.

 

[army judge]

You need to consult a tax attorney, an IRS enrolled agent, the IRS helpline, or a CPA.