did you get a 1099-INT each year for the interest? If not, then the interest wasn't taxable. All you can do now, if this is the case, is file amended returns for the years 2021-2023. Unless extended it's too late to file refund for 2020 and refunds for years prior to 2020 are barred by the 3-year statute of limitations. if they were taxable, they add to your basis and thus will reduce any taxable gain from surrendering the policy. You should discuss surrender with your insurance agent, so you know what coming down the road.
Surrender payouts
If you decide to discontinue your life insurance policy before it matures, you’re eligible to gain access to your accrued cash value minus any surrender fees. This is called a “life insurance surrender,” and as long as your settlement amount is less than your tax basis, your surrender payout is tax-free. No loss is allowed
Early payout for chronic or terminal illness
Many life insurance policies offer an accelerated death benefit rider, which allows you to access part of your death benefit while you’re alive if you’re diagnosed with a chronic or terminal illness. You can spend this death benefit early payout on anything you like, such as your medical bills, long-term care or everyday expenses. The IRS defines the payout on such riders as an acceleration of death benefits, protecting them from taxation.
