Melissa has a G2 whole life insurance policy with a face value of $200,000, a cash surrender
Question:
Melissa has a G2 whole life insurance policy with a face value of $200,000, a cash surrender value (CSV) of $45,000, and an adjusted cost basis (ACB) of $25,000. In a recent storm, Melissa incurred some damage to her cottage and is in urgent need of money for repairs. She is considering two options: either withdrawing from her policy or taking a policy loan. Which of the following statements CORRECTLY describes the consequences of Melissa’s options?
a) If Melissa withdraws $10,000 from her policy, she will incur a taxable policy gain of $10,000.
b) If Melissa withdraws $15,000 from her policy, she will incur a taxable policy gain of $10,000.
c) If Melissa takes a policy loan of $10,000, her ACB will be increased to $35,000.
d) If Melissa takes a policy loan of $15,000, her ACB will be reduced to $10,000.
Introduction to Risk Management and Insurance
ISBN: 978-0131394124
10th edition
Authors: Mark S. Dorfman, David Cather