Question Content Area

Albert had a terminal illness that would require almost constant nursing care for the remaining two years of his estimated life, according to his doctor. Albert had a life insurance policy with a face amount of $$100,000.$ He had paid $$25,000$ of premiums on the policy. The insurance company has offered to pay him $$80,000$ to cancel the policy, although its cash surrender value was only $$55,000.$ He accepted the $$80,000.$ Albert used $$15,000$ to pay his medical expenses. Albert made a miraculous recovery and lived another $20$ years. As a result of cashing in the policy:

a$.$ Albert must recognize $$65,000($$$80,000$ $$15,000)$ of gross income.

b$.$ Albert must recognize $$55,000$ of gross income, but he has $$15,000$ of deductible medical expenses.

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

d$.$ Albert must recognize $$40,000($$$80,000$ $$25,000$ $$15,000)$ of gross income.