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Specifically, all premium payments that have been made to the policy would be tax-deductible. Any amounts received greater than the cumualtive premiums paid would be taxed. Life Insurance Settlements may be entirely tax-deductible, while viatical settlements are much more likely to be closer to the death benefit and therefore much greater value than the premiums paid.
As always, please make sure to consult with a qualified tax professional to evaluate your situation individually.
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