Asked by Andy  |  Submitted October 20, 2015

If I surrender a whole life insurance policy will I be taxed on the surrender value?

I have a whole life insurance policy with an $160,000 surrender value. I need to help out a sibling. Is there any way I can do this so as NOT to pay taxes?

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  Answers  |  4

October 21, 2015

Yes, if you surrender value exceeding the premium that you paid, your extra earning will be added to your income for the same tax year when you surrender your policy.

$commenter.renderDisplayableName() | 02.24.17 @ 10:50

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October 21, 2015

Yes, you can avoid that with proper strategy .

$commenter.renderDisplayableName() | 02.24.17 @ 10:50

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November 05, 2015

Andy,
If you surrender your policy and the amount you receive back exceeds what you paid in total premiums there will be a tax. Do you need all of the $160,000 to help your sibling? If so, there’s not much you can do to avoid the tax. If the amount needed is less, you could ask the insurance company for a loan. A loan from your policy’s cash value is not taxable and depending upon your policy, you might be able to continue to earn interest on the amount borrowed even though it’s being used by your sibling. You will need to check with your insurance company as to the types of loans available to you in your policy. The insurance company is best equipped to detail the options you have and describe the differences.

I hope this helps. I would be happy to answer any follow up questions you may have after you have talked to the insurance company.
Brad

$commenter.renderDisplayableName() | 02.24.17 @ 10:50

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March 16, 2016

Yes, there is. Take a policy loan. There is no taxable consequence for loans from a life policy. If you surrender your plan, any gain above your cost basis would be subject to capital gains taxes and you would lose that insurance forever. Take a loan, have the sibling pay it back for you over time. That way you help your family member without damaging your family too much in the process.

$commenter.renderDisplayableName() | 02.24.17 @ 10:50

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