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The cash value of life insurance offers many benefits. You may be able to tap into them while you're still living and to help meet various financial goals. If you have a life insurance plan with cash value, you might be wondering if it's taxable. Keep reading to learn more about cash value life insurance policies and how they impact taxes.
Table of Contents
Cash value life insurance is a type of permanent plan, such as whole life and universal life insurance. With this policy, a portion of your premium payments goes toward the death benefit while the remainder builds cash value over time. As long as you continue to make premium payments, you can access the cash value while you're still alive through the following: 1
Here's an overview of several cash value life insurance plans:
Whole life insurance is a type of plan that lasts for the rest of your life, assuming you continue to pay your premiums. It has a death benefit and a secure cash value account, which grows tax-free. The premiums and death benefit will always stay the same.
Universal life insurance is a permanent life plan with a death benefit and a cash value component that grows based on market rates. This policy is more flexible because it lets you adjust your premiums and death benefit amount as your circumstances change.
Variable universal life insurance is a permanent life policy that lets you choose how your cash is allocated and design your own investment strategy. Like the other policies, it comes with a death benefit and a cash value.
Final expense life insurance is designed to help your beneficiaries cover end-of-life expenses after you pass away, such as funeral costs, medical debts or charitable contributions. This type of policy also builds cash value over time.
Don't wait until it's too late. Help protect yourself and your family with coverage from Aflac.
Get StartedFortunately, the cash value of life insurance grows tax-free. This means that, in many cases, you won't have to worry about paying taxes on it. But there are some instances where you may owe taxes on the cash value.
In these situations, the cash value of your life insurance policy may come with a tax bill:1
If you take out a loan from your life insurance plan, the loan won't be taxable. The exception to this is if the policy terminates before you've repaid the loan. In this case, you might get hit with a tax bill.
You're able to withdraw up to the amount of the total premiums you've paid into the policy without paying taxes. But if you withdraw on any gains, such as dividends, you can expect them to be taxed as ordinary income.
The cash surrender value of life insurance may be taxable depending on how much you receive when you end your policy. When you surrender a permanent life insurance policy, you receive the accumulated cash value minus any applicable surrender charges or fees. If that amount exceeds the total premiums you've paid into the policy — known as your cost basis — the difference is generally treated as ordinary income by the IRS and may be subject to income tax.2
A life insurance payout generally doesn't affect Social Security Disability Insurance (SSDI) benefits because SSDI is based on your disability status and work history. However, if you receive Supplemental Security Income (SSI) instead of or in addition to SSDI, a large lump-sum payout could affect your benefit amount since SSI does have asset limits. Speaking with a benefits counselor or tax advisor can help you understand the specific impact on your situation.3
Cash value is the total amount that has accumulated inside a permanent life insurance policy, including any interest or earnings. Surrender value is what you actually receive if you cancel the policy — it's the cash value minus any surrender charges, fees or outstanding loan balances.
The information in this article is for general educational purposes only. It's not intended to provide legal, tax or financial advice. Please consult a qualified tax professional or financial advisor regarding your specific situation.
While the cash value of life insurance isn't usually taxable, there are some cases where you will have to pay taxes on it. Before you move forward with a policy, make sure you understand how it applies to your unique tax situation.
You can visit Aflac's life insurance advice page to learn more about life insurance. If you're interested in getting life insurance, start chatting with an agent and get a quote from Aflac today!
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Wondering if you can have more than one life insurance policy? Learn how having multiple life insurance policies works and reasons to consider getting more.
Adjustable life insurance is a hybrid with term and whole life insurance features. Learn how an adjustable life insurance policy works and the pros and cons.
Wondering if you can have more than one life insurance policy? Learn how having multiple life insurance policies works and reasons to consider getting more.
Adjustable life insurance is a hybrid with term and whole life insurance features. Learn how an adjustable life insurance policy works and the pros and cons.
1 WSJ Buy Side – How to Access Money From Life Insurance While Alive. Updated May 12, 2026. https://www.wsj.com/buyside/personal-finance/life-insurance/how-to-use-life-insurance-while-alive. Accessed August 25, 2026.
2 Internal Revenue Service (IRS) - For Senior Taxpayers. Updated September 25, 2025. https://www.irs.gov/faqs/other/for-senior-taxpayers/for-senior-taxpayers-1. Accessed August 25, 2026.
3 Safe Harbor Estate Law – How Inheritances Impact Your Social Security Benefits Eligibility. Updated 2026. https://safeharborestatelaw.com/receiving-inheritance-while-on-benefits/. Accessed August 25, 2026.
Coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, coverage is underwritten by American Family Life Assurance Company of New York.
Term Life Policies: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68200, A68300 & A68400. In New York, Policies NY68200, NY68300 and NY68400. Whole Life Policies: In Arkansas, Idaho, Oklahoma, & Virginia, Policies: ICC1368100. In Delaware, Policy A68100. In New York, Policy NYR68100. B61000: In Arkansas, Idaho, Oklahoma, & Virginia, Policies: ICC18B61JWO & ICC18B61JTO. In Delaware, Policies B61JWO & B61JTO. B60000: In Arkansas, Oklahoma, & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400.Q60000 Whole: In Arkansas, Delaware, Policy Q60100M. In Idaho Policy Q60100MID. In Oklahoma, Policy Q60100MOK.Q60000 Term: In Arkansas, Idaho, Oklahoma, Policy ICC18Q60200M. In Delaware, Policy Q60200M.
Aflac Final Expense insurance coverage is underwritten by Tier One Insurance Company, a subsidiary of Aflac Incorporated and is administered by Aetna Life Insurance Company. Tier One Insurance Company is part of the Aflac family of insurers. In California, Tier One Insurance Company does business as Tier One Life Insurance Company (Tier One NAIC 92908). Not available in New York.
In Arkansas, Delaware, Idaho, Oklahoma & Virginia, Policies ICC21-AFLLBL21 and ICC21-AFLRPL21; and Riders ICC21-AFLABR22, ICC21-AFLADB22, and ICC21-AFLCDR22.
Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.
Coverage may not be available in all states, including but not limited to DE, ID, NJ, NM, NY, VA or VT. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations and exclusions.
Receipt of accelerated death benefits may affect eligibility for public assistance programs. Benefits may also be taxable and are not expected to receive the same favorable tax treatment as other types of accelerated death benefits that may be available.
Aflac does not offer Universal Life Insurance.
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