Tax implications on cash surrender

[Survivor]

As I understand it, a cash surrender is only taxable on the portion of the surrender that was in excess of premiums -- correct?

So, what if you take a universal life policy and over fund it to just below the point of it becoming a modified endowment contract, and then cash surrender it. Does the IRS still consider what the premium was, even if it was well in excess of the benchmark premium?

EDIT:
I also should know this but when a life policy is paid with pre tax dollars (like with sec 125) I know the DB is suppose to be taxable - but in what way?
Would the DB be taxable as normal income for that year
or
Would the DB be taxable at the capital gains rate in excess of premium paid

 

[djs]

Depends on your definition of premiums. After tax dollars you paid in can be withdrawn tax free. Any growth over that will be taxed.

Do not take this as fact. Check with a tax attorney.

Dan

 

[James]

EDIT:
I also should know this but when a life policy is paid with pre tax dollars (like with sec 125) I know the DB is suppose to be taxable - but in what way?
Would the DB be taxable as normal income for that year
or
Would the DB be taxable at the capital gains rate in excess of premium paid

Income.