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Dear Insurance Adviser,
After my death, does my family pay any state or federal taxes on the benefits from my life insurance policies?
— Howard

Dear Howard,
No, assuming that the beneficiary of your life insurance policies is a member or members of your family — your spouse or children — there are no income taxes at either the federal or state level. That is a huge selling point for life insurance.

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If, however, the policy’s proceeds end up being payable to your estate, federal estate taxes or state inheritance taxes could be assessed. That’s why it’s important to always name both a primary beneficiary and a contingent (or secondary) beneficiary, in case the primary beneficiary dies before you do.

Most people are pretty good about naming both a primary and a contingent beneficiary on their individually purchased life insurance policies. But, they often neglect to name a contingent beneficiary on their group life insurance through work. The reason is that group life application forms typically have just one box, labeled “Beneficiary.” If you have a contingent beneficiary to add, there’s usually room in the remarks section of the application.

I hope that helps.

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