Iris collected $150,000 on her deceased husband's life insurance policy.The policy was purchased by the husband's employer under a group policy.Iris's husband had included $5,000 in gross income from the group term life insurance premiums during the years he worked for the employer.She elected to collect the policy in 10 equal annual payments of $18,000 each.

Question

Quizplus · Accepted Answer

Since the policy was purchased by the husband's employer under a group policy, the $5,000 included in gross income by the husband represents the imputed income from the policy. Therefore, the amount received by Iris is not taxable. As Iris elected to receive the policy in 10 equal annual payments, she can exclude $15,000 from gross income for each $18,000 payment received, which is calculated by dividing the death benefit by the total payout amount ($150,000/$180,000) and multiplying that fraction by the annual payment amount ($18,000). Therefore, option D is the correct choice.

Iris Collected $150,000 on Her Deceased Husband's Life Insurance Policy