How are life insurance proceeds taxed to beneficiaries?

• A. Death benefits are generally income-tax-free to beneficiaries; taxes may apply if the policy is owned by the decedent or included in their estate.
• B. Death benefits are always taxed as ordinary income.
• C. Death benefits are taxed only if paid to a non-relative.
• D. Death benefits are never taxed regardless of ownership.

Answer: (C)