Normally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren't includable in gross income and you don't have to report them.
Nevertheless, any interest you receive on the proceeds is taxable and should be reported. If a policy was passed on to you for cash or other consideration, the exclusion for the proceeds is limited to the sum of the consideration you paid, additional premiums you paid, and certain other amounts.
There are some exceptions to this rule. Please see the following for additional information: IRS: Are Life Insurance Proceeds Taxable
