Whole Life Insurance Policy Cash In Value On Taxes?
Posted February 1, 2010 – 10:22 am in: structured settlements FAQMy wife quit her job. She was contributing around $10 a month to a 25,000 whole life insurance. We got a letter that said the cash value was around $700. If we cash it in is there a tax cost to us? The letter stated that the cash value will be used to pay the insurance cost till it is depleted then the policy would be closed.
If we cash it in do we have to pay capital gains or other cost on it. Or the monthly amount she has been contributing offset it??
2 Comments
The only thing that will be taxed is the difference between the total amount of premiums ($10 x # of months) and the $700.
If her total premiums is more than what the cash value is, no tax due. If the cash value is more than total premiums, she will owe income tax.
Why not just keep the policy and keep contributing to it? That’s never a bad idea.