Are life insurance benefits taxable in North Carolina?

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Asked June 8, 2010

1 Answer


In North Carolina, as well as most other states, the money paid on a life insurance is not classified as income tax. Similarly, dividends paid on a life insurance policy are considered a return on the premium and not taxed. With these two generalizations in mind, there are some circumstances where the policy may be taxed, and your insurance agent should be consulted if you are in doubt. If your policy is taxable, the insurance agent or the company that person represents will be able to tell you the details.

If the life insurance policy is deemed to be an investment, it can be taxed as investment income. Without knowing your exact situation and the details surrounding the policy, it is difficult to offer any definitive answer to this question. It is generally best to bring this question up when shopping for a suitable life insurance policy, and you may find that you get different responses depending on the company you select and the type of policy you have taken out.

Even if your policy does not qualify for income tax, it should be remembered that the claim will be added to the value of the deceased's estate, and will very likely have an estate tax applied. As with investment concerns, this is a subject that should be discussed with your insurance agent. You may find out that the policy can be set up in such a way that avoids estate taxation, but that will depend on your state insurance laws, the type of policy you are getting, and other factors.

Answered June 8, 2010 by Anonymous

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