Is Taking Cash Out of a Universal Life Insurance Policy Taxable?

Key Takeaway

The cash value of a universal life insurance policy is generally non-taxable as it accumulates. This allows the cash value to grow without the policyholder having to pay any tax bills as long as the value remains in the policy. However, if you decide to take out a withdrawal, a loan, or if you surrender your policy, you might face some tax liabilities.

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Universal life insurance can be one of several good solutions for life insurance due to its flexibility, but aside from the advantage of being able to adjust premiums, it can also be a good way to save money because of the potential to grow cash value. One of the features of universal life is that you can access your cash value at any time, provided there is sufficient money in the account to access. Of course, the question is–is taking cash out of a universal life insurance policy taxable?

The cash value of a universal life insurance policy is generally non-taxable while it remains in the policy. This means that it can grow over time without you having to worry about paying taxes on it until you use it. Any tax liability usually occurs when you decide to access your money, particularly when you take a withdrawal, loan, or if you decide to surrender your policy.

Understanding Cash Value in Universal Life Insurance

Universal life insurance typically comes with the opportunity to accumulate a cash value amount which can be borrowed against, or it can be used to pay premiums. Every time you pay premiums, a portion of your premium payment goes towards your protection cost, while the remainder goes into your cash value account, which can grow over time.

Is Cash Value in Universal Life Insurance Taxable?

As the cash value of your universal life insurance policy grows, you aren’t taxed on it as long as it remains in your policy. This means you won’t have to pay taxes on any accrued amounts or interest that’s earned. That said, when you do access your cash value via a loan or withdrawal, you may have to pay taxes in certain circumstances (but not always; these actions can still have tax advantages). It’s important to speak with a qualified tax advisor to fully understand all the tax consequences of accessing any accumulated cash value. 

When Cash Value in Universal Life Insurance Could Be Taxable

Here are some situations when accessing the cash value in your universal life insurance policy could be taxable:


You can withdraw from a universal life insurance policy at any time, provided there is sufficient cash value to access (and according to any requirements that may be specific to the insurance company and policy). In many cases, you can take out an amount equal to the amount of total premium paid in without owing taxes on what you withdraw (unless your policy is considered a modified endowment contract, which surpasses federal limits). However, if you withdraw an amount exceeding what you paid into the policy, any amount over and above that could be taxable.


Taking out a loan from your universal life insurance policy usually won’t result in a taxable event (unless, again, it’s a modified endowment contract, which requires you to pay taxes on your earnings). But if your policy terminates or lapses before you repay the borrowed amount, you could owe taxes on the unpaid balance.

It’s important to note that loans can be paid back, while any remaining cash value in the policy will continue to grow. That said, remember that any loans may reduce your death benefit, so it’s best to discuss your options with a trusted financial advisor or licensed insurance agent.

Please note that accessing cash value will reduce your policy death benefit and values, may result in certain fees and charges, and may require additional premium payments to maintain coverage. Ask your financial professional for additional information about accessing your cash value, including the potential impact on coverage guarantees and certain circumstances under which the values you access could be taxable.

Potential Tax Consequences of Insurance Surrenders

When you surrender your life insurance policy, your coverage ends. If you have accumulated cash value, you might be able to access those funds – minus any balances on loans, unpaid premiums, and surrender fees. Any accumulated cash value you receive is usually tax-free up to the amount of total premiums you paid into the policy. However, any gains may be taxed as income.

There may be other instances when taking cash out of a universal life insurance policy may be taxable, so it’s important to speak to a tax advisor to fully understand any tax implications of surrendering your policy.

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The information above is for educational use only and does not represent insurance, tax or legal advice. It is not a recommendation or solicitation to buy insurance. Please talk to your licensed insurance agent for more information about life insurance and your needs. Please consult with the appropriate professional for tax or legal advice. Guarantees are backed by the claims-paying ability of the issuing insurance company.

Article Author: Meredith Bell
Author Bio: Meredith joined Everly in 2022 and has 20+ years of experience in the life insurance industry. She has held various roles in advertising, marketing, communications, sales and distribution support, and product development. Outside of the office, Meredith lives with her daughter Kennedy and their dog Mavis. Meredith enjoys cooking, camping, gardening, hiking, and bourbon (though not always at the same time). She is a live music enthusiast and an avid reader. Her favorite quote is by Thomas Jefferson: "I cannot live without books." Meredith agrees, but would add cheese, movies, and dogs to that list.

Policies are issued by Everly Life Insurance Company (“Everly Life”), Topeka, KS. Everly Life is not licensed in the state of New York and does not solicit or transact business in New York.

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