Is Cashing Out Life Insurance Taxable? 
Depends on what type of cash value life insurance youre addressing . If the contact is Indexed , Variable or Current Assumption Universal Life Insurance , any amount over the original contributions -LRB- basis -RRB- will be treated as profit -LRB- gain -RRB- and taxable at ordinary income tax rates . Participating Whole Life Insurance is similar , but its important to note the to the extent that dividends , which are a return of unused premium , are treated as your original contributions -LRB- basis -RRB- , any amount greater than that would be treated as profit -LRB- gain -RRB- and taxable at ordinary income tax rates . Always request a policy in force ledger and the last annual statement , and then in turn , have an insurance and tax expert review it before surrendering a cash value policy . Keep in mind that surrendering the policy will terminate the death benefit coverage . 