Iris Collected $100,000 on Her Deceased Husband's Life Insurance Policy

Iris collected $100,000 on her deceased husband's life insurance policy.The policy was purchased by the husband's employer under a group policy. Iris's husband had included $5,000 in gross income from the group term life insurance premiums during the years he worked for the employer.She elected to collect the policy in 10 equal annual payments of $12,500 each.

A) None of the payments must be included in Iris's gross income.
B) The first 8 payments are a return of her capital and thus Iris is not required to recognize any income from the policy until she receives the ninth payment.
C) For each $12,500 payment that Iris receives, she can exclude $10,000 ($100,000/$125,000 ´ $12,500) from gross income.
D) For each $12,500 that Iris receives, she can exclude from gross income $500 ($5,000/$125,000 ´ $12,500) .
E) None of the above.

Correct Answer:

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