How Much Tax Is Taken Out Of Life Insurance? 
The life insurance death benefit is normally paid income tax free . The cash value in life insurance grows tax-deferred . Provided the life insurance contract is not a modified endowment contract , cash value can be withdrawn up to basis -LRB- premiums paid -RRB- without tax , subject to some limitations in the first fifteen policy years . Policy loans can be taken income tax free provided the policy is not allowed to lapse . 