Dividends are tax free until your basis is used up. Pub 525 states:
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 most cases, 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 weren’t included in your income.
References:
The IRS has a quick quiz, Are the Life Insurance Proceeds I Received Taxable?
@craigy @billjans
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
