Is Cash Value Of Life Insurance Taxable When Surrendered? 
When you surrender your life insurance you are cancelling your policy . Then you have to pay taxes on whatever amount your policy value has increased , not the entire cash value , only on the increased amount , sort of like interest earned . However , a much smarter way to do things would be NOT to cash in your policy , but rather to get a policy loan . This way you still have a policy and are not left with no insurance , and perhaps unable to buy life insurance again , due to age or health . You also continue to earn on the policy , as though the money was still there , although the death benefit is reduced , unless or until you pay back the loan . But you do not have to pay it back , unless you so choose . You should discuss this with an experienced life insurance agent . Gary Lane , Registered Representative , New York Life , 949 797 2424 . Thank you . 