Is Interest Earned On Life Insurance Taxable? 
There are different types of interest associated with a life insurance policy and they are treated differently for tax purposes . `` Interest '' earned inside a cash value policy such as a Universal Life policy is not taxed while it is inside the plan . There are limits to the cash value to death benefit ratio to keep it tax exempt from accrual taxation . `` Interest '' earned on dividends held on deposits with a participating policy such as a Whole Life policy is taxed as interest income as earned . `` Interest '' earned on a death benefit before it is disbursed is taxable as interest income . If you have further questions , or feel that I could be of assistance , please do not hesitate to contact me . If you would like to work with a local life insurance broker , you could start with a Google search . For example , if you search for : life insurance broker Halifax or life insurance agent Halifax , my name , along with several others , will come up . You can use the same method to find a life insurance broker in your community . 