Mel was the beneficiary of a $45,000 group term life insuran…

Mel was the beneficiary of a $45,000 group term life insurance policy on his deceased wife. His wife’s employer had paid all of the premiums on the policy. Mel used the life insurance proceeds to purchase a U.S. government bond, which paid him $2,500 interest during the current year. Mel’s Federal gross income from this is $2,500.

Zack was the beneficiary of a life insurance policy on his d…

Zack was the beneficiary of a life insurance policy on his deceased wife. Zack had paid $20,000 in premiums on the policy. He collected $50,000 on the policy when his wife died from a terminal illness. Because it took several months to process the claim, the insurance company paid Zack $53,000, the face amount of the policy plus $3,000 interest. Zack must include $23,000 in his gross income.