Is Cash Value Of Life Insurance Taxable When Surrendered?
4249 POINTSview profileGary LanePresident, Lane Independent Agency, Southern CaliforniaWhen you surrender your life insurance you are cancelling your policy. Then you have to pay taxes on whatever amount your policy value has increased, not the entire cash value, only on the increased amount, sort of like interest earned. However, a much smarter way to do things would be NOT to cash in your policy, but rather to get a policy loan. This way you still have a policy and are not left with no insurance, and perhaps unable to buy life insurance again, due to age or health. You also continue to earn on the policy, as though the money was still there, although the death benefit is reduced, unless or until you pay back the loan. But you do not have to pay it back, unless you so choose. You should discuss this with an experienced life insurance agent. Gary Lane, Registered Representative, New York Life, 949 797 2424. Thank you.Answered on December 31, 2013flag this answer
10968 POINTSview profileTim WilhoitOwner, Your Friend 4 Life, Brentwood TNCash value life insurance gains are taxable at time of surrender of your life insurance policy. The amount you paid in with your premiums was paid with post tax dollars and not subject to tax. As Gary stated, the best way to avoid these taxes on your cash value gains is to borrow against the value and use your money tax free. The policy loan interest rate will be minimal compared to the rate of the taxes you will owe against your gains. This option as keeps your face amount death benefit in force until the cash value is depleted to a certain point, which by the way is still growing inside the plan. I advise you to call your agent or the insurance company to discuss your options to avoid unnecessary taxation.Answered on June 15, 2015flag this answer
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