If you did not take a tax deduction for the after-tax premiums, then:
If the surrender value is more than the premiums you paid, the difference is taxable as a long term capital gains. If the surrender value is less than the premiums you paid, you have a loss that is not tax deductible (because personal losses are not deductible and this doesn't really count as an investment.). You would report it as the sale of an investment, with the purchase price being the total premiums you paid and the selling price being the amount you received.
If you did take an itemized tax deduction for the premiums, then in addition to the above, any part of the premium that you did get a deduction for, is now taxable as ordinary income as a reimbursement of a previous deduction. For example, suppose the premiums were $10,000 in 2023, and you included medical expenses in your itemized deductions. Because of the 7.5% rule, only $3000 of your medical expenses were actually deductible that year. Therefore, $3000 of the refund is a taxable reimbursement of a previous deduction. (You will have to make this calculation for every previous year that you took the itemized deduction for medical expenses and included your premiums as a deductible expense.) Reimbursements of previous deductions are reported in the other uncommon income section (miscellaneous income).
