Yes, you generally receive a Form 1099-R from your insurance company if you surrender a cash-value life insurance policy for an amount that exceeds the total premiums paid (your cost basis). The form reports the gross distribution and the taxable gain, which is considered ordinary income. If there is no gain, a 1099-R may not be required.
1099R. If you own a life insurance policy, the 1099-R could be the result of a taxable event, such as a full surrender, partial withdrawal, loan or dividend transaction. If you own an annuity, the 1099-R could be the result of a full surrender, a partial withdrawal or the transfer of the contract to a new owner.
A life insurance policy's cash surrender value can be taxable. Any amount you receive over the policy's basis, or the amount you paid in premiums, can be taxed as income. Several other scenarios may result in potential tax consequences when you surrender your policy, which we'll discuss below.
Surrender of policy for cash.
You should receive a Form 1099-R showing the total proceeds and the taxable part. Report these amounts on lines 5a and 5b of Form 1040 or 1040-SR. To report the proceeds from a policy surrendered for cash, go to our Form 1099-R - Entering Distributions from Retirement Plans FAQ.
Surrender the policy
This means functionally canceling your policy. If you do this, your life insurance coverage will end. You'll generally receive most or all of the cash value that has accumulated in your life insurance policy, but it may be subject to surrender fees and federal income taxes.
In the United States, Form 1099-R is a variant of Form 1099 used for reporting on distributions from pensions, annuities, retirement or profit sharing plans, IRAs, charitable gift annuities and Insurance Contracts.
The most common 1099 contractor hiring mistakes include unclear project scope, skipping proper vetting, poor communication, missing contracts, ignoring compliance requirements, and inadequate record-keeping. These mistakes can cost small businesses time, money, and legal headaches.
Answer: Any gain from the sale of a life insurance policy you own will be subject to income tax. Like the sale of most other assets, the difference between the amount realized or the amount you receive from the sale and your tax basis in the policy will be subject to tax.
If the policy matures while you're alive, the insurance company will pay out the benefits, and you'll owe taxes. You'll owe taxes if you cash out the policy through a surrender or partial withdrawal. However, if you want to take advantage of the cash value while you're still alive, you can use policy loans.
Life insurance is generally exempt from taxes when your beneficiaries are paid the death benefit; your cash value increases; you borrow money from your cash value; you withdraw cash value, but it's less than what you paid in premiums; or you exchange your life insurance for a different policy or an annuity.
You may view and print your Form 1099-Rs for 2025 and prior tax years on myCalSTRS. Your 2025 Form 1099-R will be available online by January 31, 2026. In addition, duplicate Form 1099-Rs can be requested in writing.
Why am I receiving this form? You are receiving this form as our records indicate you were a recipient of taxable interest of $10.00 or more (threshold may vary based on policy) paid on a life insurance claim benefit in the previous calendar year.
Answer: Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren't includable in gross income and you don't have to report them. However, any interest you receive is taxable and you should report it as interest received.
A 1099 significantly affects taxes because you're considered self-employed, meaning you pay both income tax and the full self-employment tax (15.3% for Social Security & Medicare), as there's no employer to split it with. This usually means setting aside 25-35% of your income, and you'll likely need to make quarterly estimated tax payments to avoid penalties, though business expense deductions can lower your taxable amount.
The exact timing depends on your insurance provider's processing time. Surrendering a Policy: Surrendering your policy usually takes longer, often around two to six weeks, because the insurance company will need to process your request and determine the cash surrender value after deducting fees.
Surrendering your life insurance policy is one way you can liquidate, but selling a policy you don't need may be a better strategy. Selling has several advantages to surrendering it, including higher proceeds and greater flexibility. Surrendering the policy is faster but selling it usually brings you more money.
Once surrendered, your policy is permanently terminated, and your beneficiaries will no longer receive a death benefit. You may face surrender charges or tax implications—any gains above the total premiums you've paid (your tax basis) may be taxable as ordinary income or capital gains.
Life insurance proceeds are generally not taxable and do not generate a Form 1099 unless: The proceeds include taxable interest (Form 1099-INT). The policy was transferred for value (Form 1099-R). The transaction involves a reportable policy sale (Form 1099-LS or Form 1099-SB).
Any other arrangement can fall into the transfer-for-value trap. If a policy is transferred for money or something of value, the death benefit is no longer fully income tax free. For example, the mutual obligation to purchase a co-owner's business interest at his death would be considered something of value.
Beneficiaries can use the money any way they want
There are no stipulations or conditions on benefit payouts. You can take the lump sum and use it for living expenses if you need, but you can also use it for any other purpose, from education to retirement savings — or even going on vacation.