Ask Kim
Do I have to pay taxes on insurance payouts?
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
March 10, 2000
Are disability insurance benefits taxed? What about life insurance?
Life insurance is the easy one -- the benefits aren’t subject to income tax. Period.
Whether you pay taxes on disability insurance is less cut and dried. The benefits aren’t taxed if you paid the premiums yourself, but they usually are taxed if your employer paid the premiums.
Keep this in mind when deciding whether the insurance you have through work will be enough to cover your bills if you become disabled. Employer-paid disability insurance usually covers only 60% of your income -- usually excluding bonuses -- and generally has a $5,000 monthly maximum ($60,000 per year) before taxes.
If that figure seems too small, consider buying an individual disability insurance policy to fill in the gap. For tips on buying a policy, see How to Get a Good Deal.
For more information on disability insurance, see Would You Be Covered?
