You won't be taxed on the entire surrender value, though. You'll be taxed on the amount you received minus the policy basis, or the total premium payment you made on the policy. The difference between the total premiums paid and the total surrender value will be taxable income. You will receive a form 1099 from your handling agency which will provide guidelines on how to report the income.
This wil be reported as other income on your tax return.
The cash value generally grows tax-deferred. If you surrender the policy or access cash value through a policy loan, those distributions may be taxable and could reduce or eliminate coverage, including the policy's long-term care benefits.
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