Do I have to pay taxes if I cash out or surrender my life insurance policy?
Answered by 4 licensed agents
Answered by Jack Mayer on September 24, 2026
Broker Licensed in CA
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Answered by Dean Chiapetto on September 24, 2026
Broker Licensed in VA, MD, NC, TN & WV
Sometimes.
If you surrender a permanent life insurance policy for cash, the IRS generally taxes the amount you receive above your cost basis.
Example:
You paid $40,000 in premiums.
Your cash surrender value is $55,000.
The potential taxable gain is $15,000.
And if the policy has an outstanding loan, previous withdrawals, or other factors, the calculation can change.
So before surrendering a policy, don't just ask:
"How much cash can I get?"
Also ask:
"What will the tax consequences be?"
Your insurance company can provide the current surrender value and policy information, but a tax professional can help determine the actual tax impact for your situation.
Answered by David Lewis on September 24, 2026
Agent Licensed in VA
Answered by Edward Fisher on September 24, 2026
Broker Licensed in MI
Tags: Financial Planning
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