Generally, life insurance proceeds you receive because of the death of the insured person aren't taxable unless the policy was turned over to you for a price. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract issued on or before December 31, 1984. However, interest income received as a result of life insurance proceeds may be taxable.

See "Life Insurance Proceeds" under "Miscellaneous Income" in Publication 525, Taxable and Nontaxable Income and Are the Life Insurance Proceeds I Received Taxable? for additional information.