Zack was the beneficiary of a life insurance policy on his 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 $53,000 in his gross income.

Question

Quizplus · Accepted Answer

Life insurance proceeds paid due to the death of the insured are generally not taxable income. In this case, the $50,000 Zack received as the face amount of the policy would not be taxable. The extra $3,000 paid as interest is taxable income and must be reported on Zack's tax return.

Zack Was the Beneficiary of a Life Insurance Policy on His