Yes, you should receive a corrected W-2 reporting only the taxable portion for the value of your husband's life insurance policy. Box 12 codes M and N are used to report the uncollected FICA and medicare tax on employer-paid life insurance policies.
The amount of your husband's life insurance surrender payout that is taxed as income depends on the premiums he paid into the policy. The total of premiums he paid into the policy is known as the cash basis. When he surrendered the policy, the amount of the cash basis is considered a tax-free return of principal. Only the amount you receive over the cash basis will be taxed.
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