The Cash Value on Life Insurance is only going to be taxable in certain situations.
First, you have to withdraw the cash value. If you leave it in the policy, it will grow tax-free.
Second, if you take Cash Value out as a loan, and as long as the policy does not lapse, the money will remain tax-free.
Third, if you withdraw the Cash Value, and the money you take out is greater then the money you have paid in, then the difference will be taxable. Or if the policy lapses with an outstanding loan, then this will create a taxable event.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
The cash value of life insurance becomes taxable if it becomes income. It becomes income if it is withdrawn or cashed-in and the amount received exceeds the sum or premiums paid. The differential is what is taxable.
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First, you have to withdraw the cash value. If you leave it in the policy, it will grow tax-free.
Second, if you take Cash Value out as a loan, and as long as the policy does not lapse, the money will remain tax-free.
Third, if you withdraw the Cash Value, and the money you take out is greater then the money you have paid in, then the difference will be taxable. Or if the policy lapses with an outstanding loan, then this will create a taxable event.