Ira Munro owns a life insurance policy that will pay $750,000 to his grand daughter Ginnie upon Ira’s death. To date, Ira has paid $69,200 total premiums on the policy, which has a current cash surrender value of $82,500.

a. Assume that Ira dies and Ginnie receives a S750,OOO payment from the insurance company. How much of the payment does Ginnie include in her gross income?
b. Assume that Ira liquidates the policy for its cash surrender value and receives an S82,500 payment from the insurance company. How much of the payment does Ira include in his gross income?

Answer and Explanation:

Given:

Insurance amount receive = $750,000

Total amount paid = $69,200

Current Surrender value = $82,500

A. Zero

Note: All benefits receive from life insurance policy will be exempted from all tax.

B. If Ira liquidates the policy, the excess amount received on surrender value over the amount paid will be considered as gross income.

Gross income = Surrender value - Amount paid

= $82,500 - $69,200  

= $13,300

answer: life insurance

explanation:

(a) when insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.

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