The money received by the beneficiary of an insurance policy after a loss is known as insurance proceeds. For example, when an individual has a $1 million life insurance policy and passes away, her beneficiary will receive $1 million worth of insurance proceeds. For the most part, insurance proceeds are considered non-taxable. The only exceptions to this would be disability insurance or a situation in which a capital gain is realized. If someone owned property insurance on a piece of real estate and the insurance company paid more than the value of the property, taxes would have to be paid on the difference.

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