Sam died on January 15, 2005 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 amount of interest she received, which is $1,500. The $10,000 portion is not taxable because it is a return of principal.

Sam Died on January 15, 2005 and Left His Wife