Twenty years ago, Mrs. Cole purchased an insurance policy on her own life. Mrs. Cole died this year, and the policy paid the $300,000 death benefit to her son Jeffrey. During her life, Mrs. Cole paid total premiums of $71,200 on the policy. Which of the following statements is true?
A. Jeffrey must recognize $228,800 of the $300,000 payment as ordinary income.
B. Jeffrey must recognize $228,800 of the $300,000 payment as capital gain.
C. Jeffrey must recognize the $300,000 payment as ordinary income.
D. Jeffrey can exclude the $300,000 payment from gross income.
Answer: D
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