The proceeds from a life insurance policy paid to beneficiaries upon the policyholder's death are not taxable in most cases. This means:

• The death benefit is received tax-free by the beneficiaries.

• This tax-free status applies whether the payout is a lump sum or paid in

  instalments.

However, if the death benefit accrues interest before being paid out (e.g., if the insurer holds the funds temporarily), the interest portion may be taxable.

If you surrender your life insurance policy before death and receive the cash surrender value, the situation is different:

• The taxable portion of the CSV is determined by subtracting the adjusted cost basis (ACB) of the policy from the CSV.

• The ACB is essentially the portion of premiums paid that are not related to the policy's risk coverage.

• Any amount above the ACB is considered taxable income and must be reported.

If you take out a loan against the cash value of your life insurance policy:

• The loan itself is not taxable.

• However, if the policy lapses or is surrendered, the outstanding loan amount can be considered a taxable disposition.

For permanent policies (e.g., whole life or universal life insurance) that have an investment component:

• Any growth in the investment portion of the policy is tax-sheltered while it remains within the policy.

• If funds are withdrawn, the taxable amount is calculated as the difference between the withdrawal and the policy's ACB.

• Death benefits: Tax-free (except for accrued interest).

• Cash surrender value: Taxable portion = CSV - ACB.

• Policy loans: Generally, not taxable unless the policy lapses.

• Investment growth: Tax-sheltered unless withdrawn.

It’s advisable to consult a tax professional or financial advisor for specific guidance, as individual circumstances and policy structures can vary.