If I surrender this life insurance policy and take the $40,000, are there any tax consequences?

I have a flex life policy for $100,000 that has a cash value or surrender value of $40,000.

Taxes, Life Insurance
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August 2017
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This boils down to you "cost basis" - How much have you paid into this Flex Life Insurance Policy?    If you have paid more than $40,000 into the policy the withdrawal would be tax free, but if you have made  a profit on the policy over the year you may owe taxes.  If you do sell, surrender, or withdraw from the policy, the difference between what you get back and what you paid in is taxed as ordinary income.

If you are concerned about taxes talk with a Fee-Only Fiduciary Certified Financial Planner  may be able to help restructure the policy to maximize the cash value and minimize the death benefit.  Also help come up with a strategy to minimize or eliminate taxes on your withdrawals.


A bit more info on how to maximize the value of your insurance:

3 Ways to Cash in on Life Insurance for Retirement


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DAVID RAE, CFP®, AIF® is a retirement planning specialist with DRM Wealth Management. He has been helping people reach their financial goals for over a decade. He is a regular contributor to the Advocate Magazine as well as Huffington Post, and is an on demand guest on TV and Radio.   For more information visit his website at www.davidraefp.com  or the Fiduciary Financial Planner LA Blog

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