Seymore named his wife, Penelope, the beneficiary of a $100,000 insurance policy on his life. The policy provided that, upon his death, the proceeds would be paid at a rate of $4,000 per year plus interest over a 25-year period. Seymore died June 25 of last year, and in the current year Penelope received a payment of $5,200 from the insurance company. What amount should she include in her gross income for the current year?

Question

Quizplus · Accepted Answer

Penelope received $5,200 in the current year, but the policy specified that only $4,000 per year was to be paid out, meaning the extra $1,200 is considered interest and is taxable income.

Seymore Named His Wife, Penelope, the Beneficiary of a $100,000