Is Life Insurance Cash Value Taxable Income? 
If you leave the cash value in your policy , it grows tax deferred . If you take it out , or it is given to your beneficiary after death , the life insurance cash value that is below your policy 's `` basis '' is not considered taxable income . Cost basis is the premiums you paid into the policy , minus any dividends that may have been already paid to you . If cash value greater than basis is paid out , the amount above basis is taxable . 