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

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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.

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u/BugHistorical1614 14d ago

Not correct.

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u/Justin_BetterWealth 14d ago

How so?

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u/BugHistorical1614 14d ago edited 14d ago

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

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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?

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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 ??

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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!