I surrendered a cash value life insurance policy in Delaware,can the state tax the proceeds?

Forum|Forum|6 years ago
June 3, 2019
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Best answer by SweetieJean

If the Cash Surrender Value more than the total premiums paid, and you surrender the policy (cancel it), the excess is earnings and taxable income. For example, if you paid $1,000 in policy premiums for 20 years and you cash in the policy and receive $30,000, you'll pay ordinary income tax on $10,000 in earnings. This is true for both Federal and Delaware.

Carl11_2

Employee

It depends. What you cashed out is referred to as a "whole life" policy, which in my opinion are an absolute waste of money. (But we all know what opinions are like.)
There are many different types of whole life policies. If your policy earned dividends or interest, then those earnings will be taxable. The insurance company will send you the appropriate tax reporting document if this is your case. Understand also that even if the earnings were used to buy additional paid up insurance, they are still taxable income to the policy owner.
A few years back I cashed out a $100K whole life policy that I'd originally purchased back in 1991. I got a check for $47K. Of that 47K, $12K was earnings of some type or another, and I received a 1099-R reporting that income to me.
So you might want to contact the company to inquire if any tax reporting documents will be issued to you, and see if you can at least get an approximate amount of the taxable portion of the payout, if there is a taxable portion at all.

SweetieJeanAnswer

Employee