Taxation of life insurance is determined by the total amount of the pool, cash increase and borrowing against the total cash pooled. Here is a brief explanation of the taxing proceeds.
The borrowed amount is not subject to taxes. When a person owes a loan that has been borrowed from life insurance, the taxes are charged as a loan and not as an insurance policy.
The distribution of proceeds is not subject to taxes. Once the policy holder dies, the benefits will directly be passed to the beneficiary without deduction of taxes. The amount invested in taxes is similar to premium estate investment where investment is done over a period of time.
In cash value growth, a certain amount is normally invested in an investment account. The interest earned from this amount is used for the purpose of paying taxes. This ensures that the amount that the investor will get will be intact since there will be extra amount generated from interest to meet the deferred taxes.