Life Insurance
Any kind of proceeds you might receive as a beneficiary of a life insurance policy is usually non-taxable. The tax rules are way more complicated than that, especially if you’re the holder of the policy and you decided to surrender it for cash. The IRS has an online tool that might help you understand if the proceeds you get are taxable.
Annuities
If you got an annuity that provided income in retirement, then the portion of the payment that will represent your principal is completely tax-free. The rest is simply taxed at ordinary income tax rates. As an example, if you got an annuity for $100,000 and it’s worth $160,000 in 10 years, you’d only pay tax on the $60,000 of earnings.
The insurance company from which you bought the annuity has to let you know what’s taxable. Of course, there are different rules that will apply if you got an annuity with pretax funds, like a traditional IRA. In these circumstances, 100% of your payment will be taxed as regular income.
