Yes, you will need to claim the interest, dividends, or capital gains that are paid to you as taxable income. However, if any of the principal is surrendered back to you, that is not counted as taxable income.
You would start reporting this income when you start receiving payments. As far as your relatives paying your premiums, they do not need to report this as gift unless the Life insurance policy was theirs and they transferred it to you. As long as you were the owner of that policy, you do not need to report their participation in the payment of the premiums.
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