Cameron is the owner and beneficiary of a $300,000 policy on the life of his mother. Cameron sells the policy to his brother, Parker, for $100,000. Parker subsequently pays premiums of $55,000. Upon his mother's death, how much of the insurance proceeds must Parker include in income?

Question

Quizplus · Accepted Answer

Parker must include in income the amount of the insurance proceeds that exceeds his total investment in the policy. His investment is the $100,000 purchase price plus $55,000 in premiums, totaling $155,000. The proceeds are $300,000, so Parker must include $145,000 ($300,000 - $155,000) in income.

Cameron Is the Owner and Beneficiary of a $300,000 Policy