Bob Had a Terminal Illness and Realized That He "Can't

question 101

Essay

Bob had a terminal illness and realized that he "can't take it with him." Therefore, he cashed in his insurance policy and received $120,000.He had paid $50,000 in premiums on the policy.He used the money to fulfill his lifelong ambitions of going to the Super Bowl, driving an expensive sports car, and vacationing in Bermuda.
Was Bob's behavior consistent with the Congressional intent in providing the tax exemption he was permitted to use?

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Definitions:

Compounded Monthly

The process of adding interest to the principal sum of a loan or deposit, or in other words, interest on interest, on a monthly basis.

Compounded Annually

Interest on an investment or loan calculated once a year on both the initial principal and the accumulated interest from previous periods.

RRSP

Registered Retirement Savings Plan, a Canadian retirement savings vehicle that offers tax benefits.

Ordinary Annuity

Definition: An annuity for which the payment or receipt of funds happens at the end of each period.