Over the years Rianna paid $65,000 in premiums on a life insurance policy with a face value of $100,000. Upon reaching 65, while still in good health, Rianna surrendered the policy and collected $95,000. In the year of collection, Rianna will report
A) no income.
B) $30,000 of taxable income.
C) $5,000 of tax loss.
D) $95,000 of taxable income.
B) $30,000 of taxable income.
Generally, proceeds from the sale or surrender of a life insurance is taxable to the extent the proceeds exceed the premiums paid. $95,000 – $65,000 = $30,000. The basis is recovered tax free.
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