Thanks for your thorough and thoughtful reply. The policy was not a payout because I am still alive. I surrendered the policy and the insurance company took $4200.00 of its surrender value to pay off the loan that had been growing for 40 years. I think the original policy payout was supposed to be $7000.00. I got $2800 and the government will be getting $1147 of that. My wife and I have decided just to go ahead and pay up and be thankful for the money we did get, rather than what we had to give to the government. I just posted on the Better Business Bureau website--in the place for company reviews--what happened to us with this company (The Savings Bank Mutual Life Insurance Company of Massachusetts). It should appear there in a few days. One statement I made was: "What a great deal for them. Sell a policy and at payout, they pay themselves back the loan they initiated and kept in place for 40 years because my uninformed and unsuspecting mother signed the line that said they could, and because the government didn't have a regulation that prevented their greedy behavior." It appears that the only way we could have avoided a tax situation was to payoff the loan out of pocket and after my death my beneficiary would have received the payout tax free. In my opinion, SBLI should have given us some kind of high level explanation about the tax impact before we surrendered the policy.
