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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience:  Taxes, Immigration, Labor Relations
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We have two $50,000.00 Universal Life insurance policies, each

Customer Question

We have two $50,000.00 Universal Life insurance policies, each with an accumulation fund. As we’ve aged, the premium costs have risen significantly and we would like to walk away from these policies. Is there a way to retrieve the accumulation funds without an immediate tax hit? Is there an instrument into which we can roll these funds?? What possible options might we have which would do the least damage to these funds, our tax liability? We are not wealthy, by any stretch, but we have saved reasonably well and our final arrangements would be covered. We just don’t want to keep throwing good money after bad. Any information you can provide will be greatly appreciated
Submitted: 6 years ago.
Category: Tax
Expert:  Lev replied 6 years ago.

Please see for reference IRS publication 525 -

Surrender of policy for cash. If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. In general, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income.


You should receive a Form 1099-R showing the total proceeds and the taxable part. Report these amounts on lines 16a and 16b of Form 1040.


Let me know if you need any help.