What is true regarding death benefit proceeds received as a lump sum by a beneficiary?

The statement that death benefit proceeds received as a lump sum by a beneficiary are exempt from taxes and not considered income is accurate. In most cases, life insurance death benefits are not subject to federal income tax. This means that when a beneficiary receives a lump sum payment upon the insured's death, this amount is not treated as taxable income and does not need to be reported on the beneficiary's income tax return.

The IRS generally views these proceeds as a non-taxable event, which is why beneficiaries can receive the full amount of the policy without reduction for taxes. This tax-exempt feature of life insurance is one of the key benefits and reasons many individuals purchase such policies.

It's important to note that while death benefits are typically excluded from taxable income, interest that may accrue on these proceeds after the death of the insured (if left with the insurance company for a period of time before being claimed by the beneficiary) could be taxable. However, the actual death benefit itself remains non-taxable for the beneficiary.