Question

Alfred owned a term life insurance policy at the time he was diagnosed with a terminal illness. After paying $18,300 in premiums, he sold the policy to a company that is authorized by the state of South Carolina to purchase such policies. The company paid Alfred $125,000. When Alfred died 18 months later, the company collected the face amount of the policy, $150,000. As a result of the sale of the policy, how much is Alfred required to include in his gross income?

Answer 1

The answer is: Alfred is not required to include any money earned from the selling of his life insurance company

Step-by-step explanation:

A person that suffers form a terminal illness can collect the surrender value of the life insurance policy or can sell the policy proceeds to a third party. Any income gained is excluded from their gross income taxes.

This rule only applies to terminally ill individuals.