Which statement about the tax implications of life insurance death benefits in California is generally true?

The statement that life insurance death benefits are generally received income tax-free by the beneficiaries is accurate. Under federal law, life insurance death benefits are not subject to income tax, which means that when an insured individual passes away, the money paid out to the beneficiaries is typically received without any deductions for income tax. This tax advantage is one of the reasons many people purchase life insurance, ensuring that their loved ones receive full financial support after their death.

While there are circumstances under which death benefits could be subject to estate taxes—particularly if the policyholder's estate exceeds certain thresholds—this does not affect the income tax status of the benefits received by the beneficiaries. Moreover, death benefits are not taxed as ordinary income, making it beneficial for recipients to use these funds without the immediate burden of income taxation. This is a fundamental principle in life insurance policies, providing financial security and peace of mind.