Question: Albert had a terminal illness that would require almost constant nursing care for the remaining two yeo. ten estimated life, according to his doctor. Albert

Albert had a terminal illness that would require almost constant nursing care for the remaining two yeo. ten estimated life, according to his doctor. Albert had a life insurance poliey with a face amount of $

100, 00 .

He had parid $

25, 000

of premiums on the policy. The insurance company has offered to pay him

580, 00

cancel they isy, although its cash surrender value was only SS

, 000 .

He accepted the

580, 000 .

Albert used $

15, 00

pay his medical expenses. Albert made a miraculous recovery and lived another

20

years. As a result of cashing in the policy:

.

Albert must recognize $

55, 000

of gross income, but he has $

15, 000

of deductible medical expenses.

.

Albert must recognize $

65, 000 (

80, 000 -

15, 000)

of gross income.

.

Albert must recognize $

40, 000 (

80, 000 -

25, 000 -

15, 000)

of gross income.

.

Albert is not required to recognize any gross income because of his terminal illness.

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