Is Life Insurance Loan Taxable? 
Life insurance policy loans have the potential to not be taxable . Unlike withdrawals , policy loans are not distributions . With loans you are borrowing part of the cash value in your own policy . You do n't pay tax currently on the loan amounts you take . The loan balance grows and , should death occur before the loan is repaid , it is repaid from policy proceeds making the loan non taxable . However , if the policy were to lapse while a loan balance exists , income tax would be payable to the extent of gain in the contract in the year of lapse . 