What is the term for when a life insurance policyholder cashes in part of the cash value, with excess over premiums being taxable?

The term for when a life insurance policyholder cashes in part of the cash value, with any amount exceeding the total premiums paid being taxable, is known as a partial surrender. This action allows the policyholder to access funds from the accumulated cash value while keeping the life insurance policy active, although the death benefit will be reduced by the amount withdrawn.

In this context, it is essential to understand that the cash value of some life insurance policies grows over time, and policyholders can access this growth. When they take a partial surrender, they are only accessing a portion of this cash value, which is why it is termed "partial." The taxation aspect arises because the amount received that exceeds what the policyholder has contributed (the premiums) is considered a gain, and thus is subject to income tax.

Recognizing this process is important for individuals managing their life insurance, as it can impact their financial situation. Understanding the tax implications of cashing in part of a policy's cash value helps policyholders make informed decisions regarding their benefits and financial planning.