Generally, life insurance proceeds after the insured's death are not reported as income to the beneficiaries.
However, any interest on the proceeds (such as when the proceeds are delayed) are reportable. The beneficiaries should receive a Form 1099-INT with the amount of the interest paid.
When proceeds from a life insurance policy are transferred as part of a financial arrangement before the insured’s death, they are taxable.
Life insurance policies that are cashed out (surrendered) are not taxable up to the amount of the premiums and other contributions. Earnings on the policy above and beyond the amount invested are taxable.