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?
Answers | 4
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.