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Is this taxable, and if so why?

Yes, it is taxable.

Why? Well, I could be a smart aleck and say that its because taxable income includes all income from any sources derived, unless specifically exempted.

But to avoid that label, it's because this isn't life insurance. To be life insurance, someone has to pay premiums to an insurance company, and then the insurance company has to pay out the death benefit to the policy owner.

This is a final retirement payment to the family of the deceased worker. It's coming from the union's pension fund, not from an insurance company. Therefore, it's not a life insurance payout and doesn't fit that exemption from taxable income.

--Peter
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