Life insurance policies accumulate interest on cash value tax-deferred. That's a plus if you are in a high tax bracket. Insurance policy dividends are not taxed until they exceed the policy's premiums. Until then, they're treated as a return of the money you paid in. If you cash in your policy, you'll be taxed only to the extent to which the cash value exceeds all the premiums you paid, minus any dividends not used to buy more insurance.