I am reading and see where you say the life insurance beneficiary was deceased. If there is no contingent beneficiary, this forces the company to give the benefits to the estate and it does become taxable.
Your case is complicated since normally:
A 1099-R for life insurance is often cash value withdrawal instead of an actual payout
A payout, generally isn't taxable.
Your case is one of the exceptions in Life insurance & disability insurance proceeds - IRS.
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