If life insurance is sold or transferred for valuable consideration, the proceeds of that insurance policy may be treated as taxable income when received. There are a number of limited exceptions from this rule, but they are fairly rigid and not intuitive so great care must be taken. For example, if your pension plan owned insurance on your life, and transferred that insurance by sale to a family trust unless one of the exceptions to the transfer for value rule apply, the proceeds will be subject to income tax.
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