Surrendered Life Insurance in 2025

[1997retird]

Surrendered Life Insurance Policy in 2025 and recieved statement showing breakdown of the surrender value:

Gross policy value:  $8,506.00

Plus Dividends on depoosit (Accum):  $2,208.82

Plus settlrment Dividend:  $382.82

Loan Balance:  $0.00

Net Cash Surrender Value:  $11,097.13

Less unpaid premium:  $13.12

Federal and State tax:  $0.00

Payment Amount:   $11,084.01        (I received a check for this amount)

Another form shows Total Premiums Received:  $12,052.78

Questions:

Should I receive a 1099-R?

Should I receive a 1099-DIV?

I also took a dividend cash withdrawal about 30 years ago. Should that have reduced the cost basis at that time 30 years ago and I paid the taxes on this. Will this even 30 years ago effect the current surrender values? 

The Insurance company tells me I may not get a 1099-R but they are not sure if I will get one or not get one. They say it looks like no taxes would be due thus no 1099-R needs to be included in tax return. are they correct?

Thanks in advance.... 

[MaryK4 · Accepted solution]

Yes, you should receive a 1099-R.  "Payments of reportable death benefits in accordance with final regulations published under section 6050Y must be reported on Form 1099-R." (Instructions for Forms 1099-R and 5498 (2025))

No, you should not receive a 1099-DIV.  When you took the dividend cash withdrawal it should have reduced your basis so it was not a taxable event at that time.  It is also most likely why you do not have a taxable gain today.

You do not have a taxable amount, but it is important that you report the transaction.  You should wait for a 1099-R (which are due January 31st so it should arrive very soon).  If you do not receive one, you can still report it in TurboTax with a Form 4852 (Substitute Form).  Please post again if you do not have it in about a week and ask for the steps for a Substitute 1099-R.  

[dmertz]

If the insurance company knows that the distribution is nontaxable, they have the option not to send you any Form 1099-R, so nothing to report on your tax return in this case.

[1997retird]

I found an IRS Link that may be helpful to others on many subjects.

https://www.irs.gov/help/ita

From that link I searched:  Are Life Insurance proceeds I received taxable?

And got this link:

https://www.irs.gov/help/ita/are-the-life-insurance-proceeds-i-received-taxable

Nice tool…. Just answer the questions

[1997retird]

@dmertz .... Can you point me to the IRS document that says the insurance company has an option?  

[dmertz]

Page 2 of the Instructions for Form s 1099-R and 5498 (https://www.irs.gov/pub/irs-pdf/i1099r.pdf:(

Life insurance, annuity, and endowment contracts.
Report payments of matured or redeemed annuity,
endowment, and life insurance contracts. However, you do
not need to file Form 1099-R to report the surrender of a
life insurance contract if it is reasonable to believe that
none of the payment is includible in the income of the
recipient.

[1997retird]

Thanks for all the information guys/gals.  Substitute Form 4852 also gives specific instructions, on the form, of what is required if you don't receive a 1099-R including steps required before submitting the Form 4852.

[dmertz]

If the distribution is not taxable and the insurance company issues no Form 1099-R because they know that, no reporting of the distribution is necessary on your tax return, no need for a substitute Form 1099-R (Form 4852).

[1997retird]

@dmertz , I understand you post but let me give juat a bit more of my situation.

From my original post I mentioned the Insurance Company told me by phone that it looks like I may not have a taxable event but did not say I would not get a 1099-R when asked by phone.  

What I should have mentioned in my original post was that the Surrender Letter I received said in plain letters that I may owe taxes.  Not only did it say that but they highlighted it in yellow.

I always file my tax returns that show every event that needs to be reported and/or events that may be questioned if not included.  I am cautious always and very meticulous.

THX for your input.

[dmertz]

"the Surrender Letter I received said in plain letters that I may owe taxes."

Unless the letter indicated a specific nonzero taxable amount, that's probably just boilerplate text that they put on every surrender letter.  Do you know for certain that some portion of the distribution is taxable?  Only in that case would it make sense to submit a substitute Form 1099-R where you would have to enter in box 2a the amount that you believe to be taxable.  In the absence of a Form 1099-R from the insurance company, it wouldn't make any sense to submit a substitute Form 1099-R with a zero in box 2a.  In the case where the insurance company knows that the taxable amount is nonzero or they do not know if the taxable amount is zero (because they have lost the record of the amount of investment in the contract), they must provide you with a Form 1099-R.

If they do not provide you with a Form 1099-R, the implication is that they believe that the taxable amount is zero and, absent a reason for you to independently believe that some portion should be taxable, there is nothing to report of this on your tax return.

It's often the case that the surrender amount is less than your investment in the contract, in which case the insurance company knows that the surrender of the policy is nontaxable.

[1997retird]

Got a 1099-R today:

Box 1 shows the Gross Policy Value 

Box 2a  shows taxable amount 

Box 2b shows Total Distribution checked

Box 5 shows total premiums

Box 7 shows code 7

Box 16 shows same taxable amount as Box 2a