If a life insurance policy holder takes out a loan from their whole life insurance policy's cash value, what happens with the portion of the loan that has not been paid back if the policy is later cancelled or lapsed?

Question

Quizplus · Accepted Answer

If a life insurance policy holder takes out a loan from their whole life insurance policy's cash value, if the policy is later cancelled or lapsed, only the portion of the loan that has not been paid back will be considered as gain. Therefore, this amount will also be treated as taxable income and will be subject to income taxation. In this case, the policy holder must include this amount as income on his or her income taxes.

If a Life Insurance Policy Holder Takes Out a Loan