Is life insurance taxable?

Answer:

In most cases, no.

If you live in Canada, life insurance benefits that the beneficiary of your policy receives are non-taxable. Here's another interesting point: if your beneficiary is a spouse, child, or grandchild, the benefit is 100% protected from creditors of your estate. So the person you want to receive this benefit gets paid before any creditors get paid. As a result, it protects any inheritance that you intend for a specific person.

In the US, the actual life insurance benefit is non-taxable. However, any interest on the life insurance benefit IS taxable. It's a much more complex situation, and I'd check with a tax professional to be sure that any policy that you purchase will meet your needs.