Is life insurance taxed?

Income received from a life insurance policy is not taxed and doesn't have to be reported on your tax return. However, any interest that is accrued on a policy that has paid out before it is distributed to the recipient is taxable.

Sometimes the holder of a life insurance policy may elect for the recipient to receive the money at a later date or receive it in instalment. In these cases, the policy is held by the insurer and accrues interest. Only the insurance is taxable. It should be reported on a tax return form along with any other interest received during the year.