Since it appears that you do not have any taxable gain in the policy at the moment and you indicate that you will have the money set aside should it be needed for taxes, I would elect no withholding.
There is no need to have it withheld if you will be able to have it readily available should it be needed to pay any tax due next year. It doesn't sound like you would be in any danger of an underpayment penalty situation, either, given the information that you have shared.
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