If the cash value payout exceeds
your contributions (what you paid in) the excess would be considered taxable and
should be reported. At this point, the insurance company would issue a 1099R form. I recommend that you call the policy holder and just double check if there's gain and 1099-R is issued.
If you have no gain on the payout, you don't have to report it.
If you have a loss, they are not allowed, so nothing to report, either.
