Assuming the payment was not more than the premiums you paid over the years, then the money is not taxable. I would probably leave the 1099 off your return. You may get a letter from the IRS. In your answer you will give details of the situation and why the money is not taxable income. Or, leave it off your tax return and file by mail instead of e-filing. Attach a copy of the 1099 and a written statement explaining why the income is not taxable.
