What Is The Penalty For Cashing Out A Life Insurance Policy? 
The Penalty for Cashing out a Life Insurance Policy could be the policy surrender charge which can be punitive in the early years of the contract . If the life insurance policy has cash value gain , then an ordinary income tax event will ensue , including any constructive receipt of policy loans or internal policy loans . And if the policy is a Modified Endowment Contract that is cashed in or surrendered or lapsed and the policy owner is under 59 1/2 , an additional penalty will be added as well . Consult with your tax adviser before moving forward with any withdrawals , surrenders or policy loans . 