The insurance may or may not be taxable to your mother. If taxable she should receive a 1099-R that shows the taxable amount. Whether taxable or not depends on many factors that only the payer of the policy can tell you. What she does with the money has no brearing on the tax whatsoever. Gifts are never taxable to the receiver of the gift, but the giver might need to file a form 709 for a gift more then $15,000 to any one person.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
