That depends. If the policy is a part of your compensation package, then the cost of it should be included in your income reported on the K-1 or W-2 and taxable. However, if the business "owns" the policy, then it's not income to you.
One drawback is that if the business claims it as a tax deductible business expense, then the payout is taxable income to the beneficiary recipient. Otherwise, if the business pays taxes on that money, then uses that money to pay the policy premiums, then any payout is not taxable income to the beneficiary recipient.
