Only the amount you received that exceeds the premiums you paid would be taxable, as long as you didn't deduct the premiums. Any 1099 issued should only be for amounts you earned on the policy if it had a cash surrender value. Review your policy; it should have a section about cash surrender value if applicable. Contact the company if you have questions about the 1099 when you receive it.
The surrender of an insurance policy or endowment contract for its cash surrender value, as distinguished from an exchange of policies or contracts, results in taxable income where the amount received on surrender exceeds the premiums or consideration paid.
When you surrender 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 as regular income. Any refund on a complete surrender or cancellation of the contract shall be includible in gross income to the extent that any deduction or exclusion was allowable with respect to the premiums.
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