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Does the beneficiary of life insurance have to pay the Treasury?


You want to take out life insurance to protect yourself and your family in case you die or something happens to you that prevents you from continuing to work. It is undoubtedly an intelligent and necessary option, but you want to know all the points, including whether the beneficiary of life insurance must pay the Treasury.

The answer varies depending on the family relationship of the beneficiary with the insured, the situation that has terminated the life insurance (death, disability or permanent absolute disability) and the Autonomous Community where the insured resides.

How the Treasury is taxed according to the beneficiary of the policy

When taking out life insurance, we designate our beneficiaries in the event of our death, and they can be individuals or legal entities. The beneficiary of life insurance must pay two taxes to the Treasury. If the beneficiary and the person who hires him are the same person, the Personal income tax (IRPF)). If the person who collects the money is a person other than the person who contracted it, the Inheritance tax and donations.

This is established in article 17.2 of the Personal Income Tax Law, which indicates that upon receiving this compensation, the beneficiary must pay the Inheritance and Gift Tax, just as if it were an inheritance. More information in this Tax Agency link.

The Inheritance and Donations Tax depends on each Autonomous Community and the degree of kinship that exists between the deceased person and the beneficiary, so an exact figure cannot be established on how much money the beneficiary must pay.

Here you have information of some Autonomous Communities as an example:

The amount to be paid depends on the total compensation, the province where the deceased lived and the relationship between the beneficiary and the insured.

Payment of Taxes according to the relationship with the insured

Life insurance is added to the inheritance. The total money that is inherited is called the “tax base” and the more it is, the more taxes are paid.


Although each Autonomous Community has its own peculiarities, according to the Law 29/1987of Inheritance and Donations Tax:

  • Group I: descendants and adoptees under 21 years of age.
  • Group II: descendants and adoptees over 21 years of age, spouses, ascendants and adopters.
  • Group III: second degree collaterals (brothers) and third degree (nephews and uncles), ascendants and descendants by affinity.
  • Group IV: fourth degree collaterals (cousins), more distant degrees and strangers.

The closest relatives have tax advantagess, such as reducing the tax base to pay less in the case of family members in groups I and II. In many cases (Andalusia, Extremadura, Madrid…), relatives of degrees I and II are exempt from 99% of the tax. For this reason, it is important to consult the legislation of our region: taxes vary greatly.

1.- If the beneficiary is the spouse

There is equalization between spouse and common-law partner in tax matters, so it is the same in both cases. In the event that the beneficiary is the spouse of the deceased person, if it is a community marriage and it has been specified in the insurance contract that the premiums are paid through this community of community (which implies that both paid the insurance in equal parts), the taxation of the compensation received by the partner of the deceased person will be different.

In these cases, you have to divide the amount received by 50% and declare one part in the Inheritance and Donations Tax and the other in the Income Tax return (IRPF).

On the other hand, if it is a marriage with separation of assets, the surviving spouse would have to pay the IS for the entire inheritance, which includes life insurance. You will have all the benefits of being a family member of group II.

2.- When the beneficiaries are the children

The children are relatives of groups I (under 21) or II (over 21). They are the ones who pay the least taxes, regardless of the legal status of their parents.

In addition, when the descendant suffers a disability:

  • It has an additional reduction of €47,858.59 if the degree is between 33 and 65%
  • It has an additional reduction of €150,253.03 if it exceeds 65%.

For these reasons, it is better to put the children (even if they are minors) as beneficiaries instead of the couple (if they are not married), their father or mother, in case of divorce.

3.- In case there is no family relationship

The ex-partner or partner without a legal relationship will not be able to take advantage of many bonuses and deductions and will assume a very high tax impact because since there is no relationship of any kind with the insured, they are considered group IV.

The same happens in the case of wanting to name a beneficiaryfriend or a distant relative. In this way, although the beneficiary of life insurance must pay the Treasury, the amounts vary greatly.

What happens if the life insurance linked to the mortgage?

The mortgage or loan amortization life insurance, are those that are contracted so that, in the event of disability or death, part or all of the debt is automatically paid. That is, the mortgaged do not get to collect life insurance: the money is kept by the bank, which is the beneficiary.

In the event of the death of one of the spouses, the one who survives will have to pay personal income tax, while it is not computed as a capital gain for the deceased.

As the IRPF is used to tax the income received by a person, The Treasury calculates it based on certain income brackets, which vary depending on the Autonomous Community where you reside:

  • From 0 to 12,450 euros: 19%
  • From 12,450.01 euros to 20,200 euros: 24%
  • Between 20,200.01 euros and 35,200 euros: 30%
  • From 35,200.01 euros to 60,000 euros: 37%
  • From 60,000.01 euros: 45%

Example: the life insurance has settled the mortgage of 100,000 euros. You do not have to pay 45% in taxes, but a percentage will be paid for each section. That is, 19% for the first 12,450 euros, 24% for the following 7,750… and so on until applying 45% to the 40,000 euros that would be missing from 60,000.01 to 100,000.

Life insurance and Treasury

Life insurance for disability or permanent absolute disability

In the Life insurances which include the permanent absolute disability coverage or disability, the beneficiary of the insurance is usually the policyholder himself. In these cases, it must include the compensation in your income statement so that the corresponding IRPF withholding is made.

The policyholder must pay taxes as income from movable capital. The installments to be paid, according to the Tax agency:

  • The capital received is less than €6,000: you must pay 19% to the Treasury
  • The amount received is between €6,001 and €50,000: 21% will be retained
  • When the compensation is greater than €50,001: you will have to pay 23%

Example: A man takes out life and disability insurance for himself, with an insured capital of 100,000 euros. According to treasury sections:

  • For the first 6,000 euros you will pay 19% tax (€1,140)
  • From there up to €50,000, he will pay 21% (€9,239.79);
  • From €50,0001 to €100,000, 23% (€12,880.23).

In total, this insured will pay €23,260.02 in taxes and will receive €76,739.98.

The calculation of this return on movable capital is made on the difference between the capital received and the premiums paid in the year in which the benefit is received.

In short, it is very interesting to take into account the amounts that the beneficiary of life insurance must pay to the Treasury. Although our wish is that the family never have to collect life insurance, if necessary, it is better that they have the best option in terms of taxes so that they receive as much money as possible. You can compare prices and coverage of the most comprehensive life insurance on the market here or ask one of our experts for advice on the telephone numbers 91 218 21 36 and 932 990 416.