Zack was the beneficiary of a life insurance policy on his deceased wife.Zack had paid $20,000 in premiums on the policy.He collected $50,000 on the policy when his wife died from a terminal illness.Because it took several months to process the claim, the insurance company paid Zack $53,000, the face amount of the policy plus $3,000 interest.Zack must include $23,000 in his gross income.

Question

Quizplus · Accepted Answer

The $50,000 received from the life insurance policy is not taxable. The additional $3,000 in interest is taxable and should be included in Zack's gross income, but not the entire $53,000. Therefore, the correct amount to include in Zack's gross income is $3,000, not $23,000.

Zack Was the Beneficiary of a Life Insurance Policy on His