Question

Q16 Life Insurance Proceeds

a. Ben was diagnosed with a terminal illness (His physician estimated that Ben would live no more than 18 months). After he received the doctor’s diagnosis, Ben canceled the life insurance policy and used the proceeds to enjoy the rest of his life. Ben had paid $12,000 premiums on the policy, and he collected $50,000. How much should be included in Ben’s gross income?

b. Henry enjoys excellent health. He canceled his life insurance policy and cashed in the proceeds to purchase a new home. He had paid premiums of $12,000 and collected $50,000 from the insurance company. How much should be included in Henry’s gross income?​

Answer 1

a) Nothing should be included in Ben's gross income because he is terminally ill.

b)In Henry's case:

$ 50000 received - $ 12000 premiums paid = $ 38000 should be included in his gross income