The life insurance thing gets very complicated - I've been trying to do some research into that myself, since I want to make sure the beneficiary on my life insurance policy knows what the heck to do with it. Sometimes there are tax penalties for accepting a lump sum payout. There are lots of ways you can get the payout though - annual for a specified period of time is common, I think. You can do pretty neat things with policies before you die, too - say, put a condition on it for a child. Wanna have your grandchild get $10,000 per year until they either graduate college or turn 30, whichever comes first, then they get the whopping remainder of the life insurance payout? You can totes set that up!

Tax issues probably vary based on location, but about everywhere, if you put the payout anywhere it can earn interest/dividends/whatever, you'll be taxed on said interest. Also I believe if you have certain types of policies (e.g., corporate life insurance) with no beneficiary designated beforehand (e.g., you left it blank/had no will, so it ends up going to next of kin or whatever), the payout is taxed pretty heavily.

But, erf. I don't know enough about this yet. Just trying to figure it out. It's excessively complicated. D: