It really varies by policy type but look at this
"The surrender of your policy may result in taxable gain. If you surrender your cash value life insurance policy, any gain on the policy will be subject to federal (and possibly state) income tax. ... Your basis is the total premiums that you paid in cash, minus any policy dividends and tax-free withdrawals that you made." Notice that dividends received reduce the basis.
Where the policyholder, here, has held the policy for 60+ years, this is certainly an older type of policy which front-loaded the commission and operating expense of the policy, and may have had reducing premiums over the years (a lot of the older policies offered that as an inducement (when you retire, it costs nothing!) - so over 60+ years there has been considerable investment gain and if paid out as death benefit it would not be taxable, but as surrendered most assuredly is taxable.
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