Get your taxes done using TurboTax

First, any loan is never taxable income, because the money is not yours.  If you default on the loan or the loan is cancelled, so that the money becomes yours to keep, the outstanding balance will be taxable at that time.

 

Then second, any interest you pay on the loan is not tax-deductible.

 

Third, if you do withdraw money from a life insurance policy (not a loan, a full withdrawal), amounts you withdraw up to the after-tax premiums you paid are non-taxable because it is a return of money that you already paid tax on.  If you withdraw more than your original premiums, that extra income is taxable income.  (But even then, the death benefit is not taxable to the beneficiaries even if it is more than the premiums that were paid in.)