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I purchased a single premium whole life insurance policy in 1984. I am confused about the tax on policy loans

Original premium- $50,000. Total loans- $66.000. Cash surrender value-$64,000. I would like to access that $64,000 so I can earn a better return than the 3.25% the insurance company is paying. I realize that i will have to pay tax on the loans I have but the company is claiming I will also have to pay tax on all the interest on these loans that has been accumulating for years at 8%!! I understood that this interest charge is a "wash" meaning I am charged 8% but also credited 8% since I am borrowing my own money from policy earnings. This total interest is well over $100,000 which of course would prevent me from surrendering the policy since most of my $64,000 would go to taxes. I believe the company is mistaken on this and they may be saying this to keep my money. The original contract does not address this at all and I have researched the IRS code and have not found a specific statement. The company says this is their interpretation of the code, but not the actual code statement. Help

Public Comments

1. If you cashed out, I suspect that you would realize income of $66,000 + $64,000 - $50,000, or $80,000. This is enough of a hit to justify a visit to a tax consultant. Since the value of the policy has grown from $50,000 to $130,000 in 23 years, your compound rate of return on the original investment is 4.15% per year. Nothing to brag about, but you did have insurance coverage.
2. pay taxes on the difference between what you paid in and how much you cash out.