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
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
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Answered by Dean Chiapetto on September 24, 2026
Broker Licensed in VA, MD, NC, TN & WV
Answered by Edward Fisher on September 24, 2026
Broker Licensed in MI
Tags: Financial Planning
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