Is It Taxable If I Receive Money From A Cancelled Life Insurance Policy?
Yes, If you receive money from a cancelled life insurance policy, that money may be considered taxable income when you file your tax return.
A portion of the funds cashed out from your insurance policy would be your premiums (money paid to your policy by you) and another portion could be your earnings (money matched or contributed by your policy holding company).
The cash balance is a combination of the two things (your premiums + your earnings). Only the earnings are taxable when withdrawn.
Contact your life insurance policy holding company to find out what your basis (premium total paid) cash value is to date. Anything in excess of your basis would be taxable.
Contact us if you have questions about what’s considered taxable income.