It depends.  If you had a group policy that was paid for by your employer or by pre-tax payroll deduction, then the benefits are taxable and you would add to your income, thus increasing your taxable income.  If, however, the policy was an individual policy purchased by you (or a group policy) and the premiums were paid for with after tax funds, then the benefits would not be subject to federal income tax and there would be no effect to your taxable income.  Please see more on the question as answered by the IRS; Life Insurance Disability Insurance Proceeds