Turquoise Company Purchased a Life Insurance Policy on the Company's

question 25

Multiple Choice

Turquoise Company purchased a life insurance policy on the company's chief executive officer, Joe. After the company had paid $400,000 in premiums, Joe died and the company collected the $1.5 million face amount of the policy. The company also purchased group term life insurance on all its employees. Joe had included $16,000 in gross income for the group term life insurance premiums. Joe's widow, Rebecca, received the $100,000 proceeds from the group term life insurance policy.

• A) Rebecca can exclude the life insurance proceeds of $100,000, but Turquoise Company must include $1,100,000 ($1,500,000 - $400,000) in gross income.
• B) Turquoise Company and Rebecca can exclude the life insurance proceeds of $1,500,000 and $100,000, respectively, from gross income.
• C) Turquoise Company can exclude $1,100,000 ($1,500,000 - $400,000) from gross income, but Rebecca must include $84,000 in gross income.
• D) Turquoise Company must include $1,100,000 ($1,500,000 - $400,000) in gross income and Rebecca must include $100,000 in gross income.
• E) None of these.

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Definitions:

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