Life insurance death benefits are generally not subject to federal income tax, and Tennessee has no state income tax on wages, no inheritance tax, and no estate tax.
Tennessee repealed its inheritance tax in 2016 and its Hall tax on investment income in 2021. Exceptions to tax-free treatment include interest earned if the benefit is paid in installments, and policies that were transferred for value.
Very large estates may owe federal estate tax, since life insurance you own counts toward your taxable estate. Some families use an irrevocable life insurance trust (ILIT) to help avoid that. For larger estates, coordinate with a Tennessee estate planning attorney or CPA.
Questions about your own policy? Ace Insurance Consultants in Knoxville helps homeowners and drivers across Tennessee compare options from multiple carriers.
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