Q: Do I owe Taxes When I Cancel My Cash Value Plan?
When you attempt to cancel most companies will try and imply that dropping the policy will have “serious” tax consequences. There is very rarely any tax due, and if there is it is based on the amount you receive back that is in excess of the premium you paid. By adding up the number of years you have paid the premium times the annual cost you can quickly determine the extent of any tax that may be due. The tax liability is only on the gain over the amount of premium paid, not the entire cash value amount. However, you need to include any dividends received during the policy term in addition to the cash value. Even if a tax is due or surrender charges applied, Dave advises cancelling these plans and moving on to more effective strategies. The key element for you to consider is to make sure you have the correct amount of life insurance that your family needs. You need to see your mistakes behind you and move on toward more productive financial decisions and processes. Remember never to cancel an existing plan until you receive the new policy you are considering and you have reviewed it to make sure it meets your individual needs.