Question

As a result, she is required to include $ in her gross income.Leland pays premiums of $7,250 for an insurance policy in the face amount of $36,250 upon the life of Caleb and subsequently transfers the policy to Tyler for $10,875. Over the years, Tyler pays subsequent premiums of $2,175 on the policy. Upon Caleb’s death, Tyler receives the proceeds of $36,250.

As a result, she is required to include $ in her gross income.

Answer 1

There are exceptions to the general rule that life insurance proceeds paid to the beneficiary because of the death of the insured are exempt from income tax. A life insurance policy (other than one associated with accelerated death benefits)may be transferred after it is issued by the insurance company.If the policy is transferred for valuable consideration ,the insurance proceeds are includable in gross income of the transferee to the extent the proceeds received exceed the amount paid for the policy by the transferee plus any subsequent premiums paid . therefore Tyler must include $ 23,200 ($36,250 procees - ($10,875 + $2,175 in subsequent premiums) in his gross income