Life insurance payouts are generally not taxable, but exceptions exist. Withdrawals or loans exceeding premiums from whole or universal life policies may be taxed. Canceling a policy taxes accrued cash value as income. Employer-paid group life benefits over $50,000 are taxable. Installment payments incur tax on interest earned. If the estate is the beneficiary, estate taxes may apply. Use proceeds to pay debt, build emergency funds, or save for retirement.