Yes, it is taxable to Illinois residents. it depends how you entered this into the program. Did you enter this as a qualified plan when it asked the question? If you said yes, then the program thinks this is a qualified retirement pension that is not taxable to the state of Illinois. Switch your choice to non-qualified and see if this will make the difference because an amount from a life insurance settlement is non-qualified.
I tested this into my own program and it worked. The amount was reflected correctly in Box 1 of the Illinois 1040. let me know if this works.
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