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I believe the capital gains tax applies to other financial investments too. No different if you bought stock and then sold it.
I can't think of ANY insurance product where capital gain taxes apply. Only ordinary income tax rates.
What Golfnut2112 is referring to is 'phantom income'. This is when a life insurance policy is cancelled or lapsed while it has an outstanding loan(s). ALL of the outstanding loans are then added into the policy owner's taxable income for that year. (That can be a hefty amount!)
http://www.investmentnews.com/artic...-could-lurk-in-failed-life-insurance-policies
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To avoid the tax while having outstanding loans... is to simply keep the policy in force (sometimes easier said than done). You only get into trouble when you cancel the policy while there are loans against it.