How to calculate the taxable amount for a cashed-in whole life insurance policy - MoneySense
How to calculate the taxable amount for a cashed-in whole life insurance policy Is cashing out whole life insurance taxable? Ah, Rasheed, I am sorry to tell you the insurance company is correct. Before cancelling a whole life insurance policy, contact the insurance company or your agent, and ask what the taxable amount will be. How not to calculate the taxable amount on insurance Many people assume the insurance cash value is just like any other investment-50% of a capital gain is taxable according to your income tax bracket. How to calculate the taxable amount on insurance Insurance companies generally use this formula to determine the taxable amount of the cash value, cash surrender value minus the adjusted cost base. The ACB is equal to the premiums paid "Minus" the net cost of pure insurance. To understand the formula, you need to understand the term net cost of pure insurance, which also means understanding what happens with your whole life premium payments. The designed solution is to pay premiums in excess of the actual cost of insurance in your early years, so that can be invested and used to help pay for the actual cost of insurance in later years.