Sam died on January 15, 2010 and left his wife, Terry, an insurance policy with a face value of $100,000.Terry elected to receive the proceeds over a 10-year period ($10,000 plus interest each year).This year Terry receives $11,500 ($10,000 proceeds plus $1,500 interest)from the insurance company.How much income must Terry report from this payment?

Question

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Terry must report the interest portion of the payment as income, which is $1,500. The $10,000 proceeds are not taxable as they are a return of the principal amount.

Sam Died on January 15, 2010 and Left His Wife