Insurance policy proceeds are not subject to Income Tax and pay as soon as the claim is processed after death. Usually within 30 days. The Industry calls this "delivering the promise".
HOWEVER - Life Insurance proceeds are subject to Estate Tax unless the ownership of the policy and beneficiary of the policy have been assigned to an Irrevocable Life Insurance Trust. This is because Estate Tax is assessed against anything you have "incidents of ownership" in. This is a big deal if you think you may have an Estate large enough to be subject to Estate Tax. BTW, that is just the most basic technique for sheltering Life Insurance proceeds from Estate Tax. It has to be interrelated with everything else that's going on.
Many unwary ranchers, farmers, grove owners, and small business owner's families in general wind up paying Estate Tax because it tends to catch the unwary and illiquid.
Also note that at present the exemption will drop to $1 million in in 2011 unless (LOL) Obama and Congress act to keep the present $3.5 mil exemption. Obama has already extended top 45% rates for '09 for '10 - which was supposed to be a zero Estate Tax year (Bush Admin tried hard to kill this tax). Top rate goes back to 55% in '011, too.
The conventional wisdom prior to the Financial Crisis was that the Estate Tax would be repealed or that the Exemption would be raised significantly - with the Government now so incredibly overcommitted across the board, there is a major planning risk that positive changes to the Estate Tax may not happen.
You need to find an experienced Life Insurance Agent - who routinely works on "Advanced Markets Major Cases" - and get some advice particular to your State. Many States also have an Estate Tax, Florida assesses Estate Tax if the Feds do.
Also seek out a solid Law Firm which does Estate Tax Planning all the time. This entire topic is subject to frequent changes; you need advice from professionals who deal with Estate Tax contingency planning every day. Ask lots of questions before retaining anybody.
Estate Planning is a royal pain for most successful, self-made people - but you will feel good about getting it behind you. I am not licensed in Texas and do not know all the protocols on AR15.com yet: but if it is allowed, send me a message and I can mention some Houston area law firms to you - have clients with interests in Texas and Florida.
Last bit of advice: whatever you do, don't put off coming to grips with Estate Planning if you think you might be pushing the threshold of being subject to the Estate Tax. Many Widows and families have had very unpleasant surprises from a system that considers everybody with more than two nickels to rub together "rich". Surprises that create heartache and damage for years, prolonging the pain from losing a loved one. In my experience it seems to strike the self-made who started out with little or nothing most often. Good luck!