Do beneficiaries pay taxes on a life insurance payout?

Generally no. The IRS does not count life insurance death benefits paid to a beneficiary as gross income, so a standard lump-sum payout arrives tax-free. There are specific exceptions worth knowing: interest earned on the payout is taxable (for example, if it's paid in installments or left in an interest-bearing account); if the policy names the estate as beneficiary, the proceeds can become part of the taxable estate; employer group coverage above $50,000 has its own IRS treatment; and mismatched policy roles (owner, insured, and beneficiary all being different people) can trigger gift-tax issues. The structure decisions made when the policy is set up are what keep the payout tax-free later.