IRC 101(a) states the general rule that amounts received under a life insurance contract paid by reason of the insured's death are excluded from gross income. The exclusion applies to beneficiaries regardless of whether the policy is individual or employer-owned, subject to other subsections that can limit the exclusion (such as transfers for value or failure to meet employer-owned life insurance requirements).

Claims teams issue Forms 1099-INT when interest is paid on proceeds and confirm tax-free treatment of the principal under 101(a). Advisors choose settlement options accordingly.