Final answer:
Gains on cash surrender or transfer of a life insurance policy may be excluded from gross income if the policy is on the life of an individual who is terminally or chronically ill.
Step-by-step explanation:
Gains on cash surrender or transfer of a life insurance policy may be excluded from gross income if the policy is on the life of an individual who is terminally or chronically ill.
Terminally ill means that the individual has been certified by a physician as having an illness or physical condition that is reasonably expected to result in death within 24 months from the date of the certification.
Chronically ill means that the individual has been certified by a licensed healthcare practitioner within the previous 12 months as unable to perform at least two activities of daily living (such as eating, bathing, dressing, etc.) without substantial assistance, or as requiring substantial supervision to protect against threats to their health and safety due to severe cognitive impairment.