Co-Founder, Coastal Financial Partners Group, California
Life insurance policy loans have the potential to not be taxable. Unlike withdrawals, policy loans are not distributions. With loans you are borrowing part of the cash value in your own policy.
You don't pay tax currently on the loan amounts you take. The loan balance grows and, should death occur before the loan is repaid, it is repaid from policy proceeds making the loan non taxable. However, if the policy were to lapse while a loan balance exists, income tax would be payable to the extent of gain in the contract in the year of lapse.
.JPG){kind=avatar}
You don't pay tax currently on the loan amounts you take. The loan balance grows and, should death occur before the loan is repaid, it is repaid from policy proceeds making the loan non taxable. However, if the policy were to lapse while a loan balance exists, income tax would be payable to the extent of gain in the contract in the year of lapse.