Sixteen years ago, Ms. Cole purchased a $576,000 insurance policy on her own life and named...
Sixteen years ago, Ms. Cole purchased a $576,000 insurance policy on her own life and named her son as sole beneficiary. She has paid $35,712 total premiums to keep this policy in force.
- This year, she liquidates the policy for its $44,352 cash surrender value. Does she recognize income on the liquidation?
- Now assume that Ms. Cole is terminally ill. The insurance
policy provides that a person with a life expectancy of less than
one year can liquidate the policy and receive 80 percent of the
death benefit. She does so and receives a $460,800 accelerated
death benefit. Does she recognize income on the
liquidation?
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