Do i have to claim a life insurance policy cash out?

[ryanmesa]

I cashed out a life insurance policy do i have to claim it?

[bwa · Accepted solution]

If you cash in a life insurance policy you may have taxable income. The taxable income would be -

• the cash surrender value that you received (including any amount not received due to a loan on the policy), minus
• premiums paid over the life of the policy. On a mutual policy, premiums are net of participating dividends.

Generally, this only results in income on older policies. Your insurance company should send you a Form 1099-R for the income to report.

[hardee40]

What if i did not get 1099r

[khende]

We received a life insurance distribution and Turbo Tax is considering the full amount of the gross distribution as income though there is a taxable amount and taxes withheld listed in the 1099-R.  This doesn't see right?  

[JohnB5677]

Something does not seem correct.  

Please clarify what is on the 1099-R.

• Is there a value in both boxes 1 and 2a?
• What is the code in Box 7?

Also, please go through the interview, and if you are not sure of a question add it to your posting.

[khende]

Thank you for your prompt response 🙂 I figured it out!  Turbo Tax is adding the gross distribution to my total income, but is not calculating the full distribution within the taxable amount of our total income.  I was looking the federal review page and not the actual form.  Just to answer your questions yes there is a value in boxes 1 and 2 as well as federal income taxes were withheld.  Box 7 has code 7, normal distribution.  

[louieloui]

My policy is over 50 years old, original value $1000 but now has a cash value of $6500 (paid up insurance of $8500).  Each year I received dividends on the policy that were used to purchase additional insurance.  These dividends were always included in my income.  Is the cost basis of my insurance policy not only the premiums I paid for the $1000 policy but also all of the dividends  I included in my taxable income over the years?  Wouldn't this render my cash out as zero?

[Critter-3]

@louieloui 

This will all  be reflected on the form 1099-R when it is issued.