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Cashing out a life insurance policy but with some twists...

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Posted: Mon Sep 14, 2009 7:09 pm   Post subject: Cashing out a life insurance policy but with some twists...   I am trying to find out if my G/F will be taxed if she surrenders a life insurance policy her father had on her. But here is the story so it will make sense to someone... Her father took out a policy on her when she was around 12 years old. He made payments for years but some time in the past he stopped making payments and he let the dividends make the payments on it and on top of that he also took out at least one $5000 loan on it about 3 years ago and again let the dividends make those payments. Well he passed away last month and was apparently wiped out. My G/F is now the policy owner (Holder? I am not sure of the title) and I have been the benificiary for a couple of years. She spoke to the insurance company and they said if she cashes it out she'll have to pay taxes on the $19000 cash value even though the actual cash value is about $7000. That makes no sense to me because she's only getting 7K and not the 19K Are they correct or are they just trying to scare her into not closing it out? I hope this made sense and thanks! Bill ITPro	BillITPro New member Joined: 14 Sep 2009 Posts: 2 1.59 Dollars($)
Posted: Tue Sep 15, 2009 12:00 am   Post subject:    They aren't trying to scare her. Income taxes will be owed on the gain. Money that has previously been removed from the policy and interest doesn't get ignored.	InsuranceExpert Senior member Joined: 05 Apr 2009 Posts: 662 142.69 Dollars($)
Posted: Tue Sep 15, 2009 12:38 am   Post subject:    Thanks for the reply the problem is that her father took the loan not her so how can she have to pay taxes on it? And the gains were offset by him not paying the policy so aren't the gains then negated by that? Bill ITPro	BillITPro New member Joined: 14 Sep 2009 Posts: 2 1.59 Dollars($)

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