Cash value is tax-free. The money that you withdraw from your cash value is only taxable if it exceeds the total amount of premiums thus far in your policy. To illustrate, look at the example of Alex - one of our recent clients. Alex decided to surrender his policy for $15,000, and the amount of his paid premiums thus far was $10,000. This means that he wanted to withdraw $5000 more than what he had paid for his premiums. So, $5000 was taxable.