Will the insurance company deduct any taxes on a life insurance policy? Is the year end taxable?

What sort of payoff, is this a payoff of the interest and principal to the owner, or is it a death benefit.

** the death benefit is not normally taxable.

If you are cashing out a policy that may have a gain (for example whole life or variable policy), any gain in the policy is taxable income. The insurance company will send you a 1099 that details the amount of the gain. The bad news is that if you have a loss, the amount of the loss is NOT deductible.

Ebaines analysis is accurate.

If you are talking about a death benefit, NO income tax is due.

There MAY be some estate tax considerations, but that is not likely.