Allison is trying to complete her income tax return A number
Allison is trying to complete her income-tax return. A number of questions have come up about life insurance. Explain the tax treatment of each of the following.
a. Allison is the beneficiary named in her grandfather's life insurance policy. Her grandfather died this year and Allison received a lump-sum payment of $50,000. She wonders if she has to report the $50,000 as taxable income.
b. Allison purchased a $100,000 cash value life insurance policy on her own life six years ago. This year the cash value increased by $380. Allison wonders if the cash-value increase must be reported as taxable income. The policy remains in force.
c. Allison's annual life insurance premium is $350. Allison itemizes her income-tax deductions. She wonders if her life insurance premium is a tax-deductible expense.
d. Allison's ordinary life insurance policy is a participating policy. This year she received a cash dividend of $120. She wonders if she is required to report the $120 as taxable income.

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