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Is It Taxable If I Receive Money From A Cancelled Life Insurance Policy?

Is It Taxable If I Receive Money From A Cancelled Life Insurance Policy?

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 Only the earnings are taxable when withdrawn.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.

Written by Jeff Johnson

Jeff Johnson has been helping individual and small business clients with tax and financial planning for over 15 years. Starting with a degree in finance from the University of North Dakota, Jeff has continually increased his financial education. He currently holds the industry designations of Enrolled Agent (EA) and Certified Financial Planner (CFP®). In addition, he holds a life and health insurance license from the state of California. Jeff is a member of the California Society of Enrolled agents and the Financial Planning Association.

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