"Dividends used to purchase paid-up additional insurance or to pay premiums on the same policy are not taxable.
Actually, it depends on the type of whole life policy one has. For the whole life policy I used to have, if the dividends are never "paid out" and you never sell or cash out the policy, then the statement is true that the dividends are not taxable. But when you cash out the policy, the dividends become taxable not matter what they were used for; be it buying additional insurance or anything else.
Generally, if you cash out a whole life policy and they send you a 1099-R, 1099-DIV or any other type of tax reporting document, then whatever portion of the payout is reported on that document is reportable on the tax return. The taxability of it may very well be a different matter. But it is reportable. Otherwise, they would not have issued the document.
