Required Reporting Items
Life insurance premiums are generally not deductible, so they do not appear on your tax return. However, any cash value growth, dividends, or policy loans that exceed the cost basis must be reported as taxable income. Additionally, death benefits paid to beneficiaries are usually tax‑free, but if the benefit includes interest or is paid in installments, the interest portion is taxable.
More from this site
Keep reading the latest coverage
Cash Value and Dividends
When a permanent policy accumulates cash value, the insurer may issue a Form 1099‑INT or 1099‑DIV. Report the amount shown on the appropriate line of your Form 1040. If you withdraw more than your total premiums paid, the excess is considered taxable gain.
Policy Loans and Surrenders
Loans against the cash value are not taxable as long as the policy remains in force, but if the loan is not repaid and the policy lapses, the outstanding amount becomes a taxable distribution. A policy surrender or partial surrender that exceeds your basis also creates a taxable event.
Death Benefits and Interest
Beneficiaries receive death benefits tax‑free, but if the insurer pays interest on a delayed payout, that interest is taxable and must be included on the beneficiary's return.
Summary Table
| Item | Tax Treatment | Reporting Form |
|---|---|---|
| Premiums paid | Not deductible | None |
| Cash value growth | Taxable if withdrawn above basis | 1099‑INT/1099‑DIV |
| Dividends | Usually taxable | 1099‑DIV |
| Policy loans | Non‑taxable unless policy lapses | None unless lapse |
| Death benefit interest | Taxable | 1099‑INT |