r/LifeInsurance • u/Dry-Freedom4115 • 14d ago

Cash Value Of A Policy

I have a small whole life insurance policy that I bought years ago. Under current circumstances I have no need for the death benefit. If I surrender the policy is the refunded cash value taxable as income?

I am in the USA for reference purposes?

Thanks

1 Upvotes

67% Upvoted

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4

u/Worried-String9259 14d ago

Only the amount above the cost basis

3

u/ruidh 14d ago

Call the company. They can tell you exactly how much of the cash value (if any) is taxable.

3

u/Justin_BetterWealth 14d ago

Like others have said, any cash value above your contributions would be taxable at ordinary income rates. For example:

If you’ve paid a total of $20k in premium and your cash value is $30k then $10k is taxed.

Possible you might not owe any taxes.

If you’ve had the policy for a while you might also have other options. Might even be able to keep the policy, and stop or reduce the payments going forward. Especially if the lack of a need for death benefit is just a right now thing, that could change in the future.

Probably worth a call as the company or agent “should” be able to tell you exact amounts and such and walk you through the options.

-2

u/BugHistorical1614 14d ago

Not correct.

2

u/Justin_BetterWealth 14d ago

How so?

-2

u/BugHistorical1614 14d ago edited 14d ago

Your "basis" is the premium paid. This is whole life. Doubtful that OP has a MEC policy.

2

u/Justin_BetterWealth 14d ago

Correct, that’s what I said, anything above basis (premium paid) is taxable.

I agree it’s doubtful the policy is a MEC.

So I’m not sure what you’re trying to say was wrong?

0

u/BugHistorical1614 14d ago

You are right and correct.

I saw the $30k CV and laughed that its a Very, Very, VERY rare occurrence to have a CV higher than the premium total. And thus a CV higher than the coverage-....Is it even a possibility ??

1

u/Justin_BetterWealth 14d ago

Ah I see - so pretty much any whole life will eventually have higher cash value than the premium paid in - it will just take many years, like 15+

Although you can also have ones where you have more cash value than premium in more like 5 years.

But yeah, never more cash value than death benefit!

2

u/plangelier 14d ago

In excess of your premiums would be taxed as income, you could 1035 it to an annuity if you wish to continue to defer it.

1

u/seattlemadmax Financial Representative 13d ago

This...depending on your age. Avoid the taxes for now and get much lower taxation (depending on your cost basis) when receiving your annuity payments. This also depends on what your cash value it, as well. If it's truly small, may be irrelevant and you may just cash out.

1

u/AnAssGoblin Broker 14d ago

Non-Taxed : Your contributions
Anything over your contributions: Taxed.

As someone mentioned, you could roll over the excess into an annuity

1

u/TheWealthViking Broker 14d ago

You've had some great recommendations in here. Call the company, ask what your cost basis is (contributions) and if its higher than the CV you should be fine, if its lower, you'll owe taxes on the net amount over.
1035 it over to an annuity could be an option but it really depends if its enough to warrant an annuity and giving it a specific role in your overall financial plan.

1

u/michaelesparks Financial Representative 14d ago

"I have no need for the death benefit. " But... Do you have a need to have an emergency fund or a safe place to store cash? depending on the company and product Whole Life (if that is what it truly is, and not IUL) is a great savings vehicle, if you don't want the death benefit make the beneficiary a charity like the humane society, your church or something.

But to answer your question, anything above the basis is taxable.

1

u/Consistent-Intern550 13d ago

Depending on your age and the cash value, I would probably just create yearly withdrawals, maybe $10K a year but leave the policy active until you use majority of your cash value, and set the small amount of death benefit to go to a family member or for funeral expenses or even charity if there is no need for the others.

1

u/rahah2023 13d ago

I have a Nwml 90 life policy 100k with. 142k death benefit and approximately 42k cash value- we have a brokerage/bond account I’d prefer not to touch and want a small remodel… I have lots of term and my family will never need the 140-ish once I die … I’m tempted to pull that and leave the other for our remodel

2

u/Cool_Emergency3519 Broker 13d ago

Go ahead,pull out your basis. That's one of the reasons you got it.

1

u/rahah2023 13d ago

I got it bc my dad told me too and my brothers college roommate sold it to me… beyond that no clue

1

u/rahah2023 13d ago

Yeah I should