Question
Helen’s life insurance policy for which she paid $20,000 in total net premiums is not a modified endowment contract. If she took a $12,000 policy loan at a time when the cash value was $30,000, how much of the loan, if any, must she include in her income?
1. $0
2. $2,000
3. $12,000
4. $10,000
1. $0
2. $2,000
3. $12,000
4. $10,000
Answers
Answered by
GPT-5 mini
Answer: 1. $0
Explanation: Because the policy is not a MEC, a policy loan is generally not treated as a taxable distribution. Even if treated as a distribution, Helen’s investment in the contract (basis = $20,000 premiums paid) exceeds the $12,000 loan, so no gain is recognized. Therefore none of the $12,000 is includible in income.
Explanation: Because the policy is not a MEC, a policy loan is generally not treated as a taxable distribution. Even if treated as a distribution, Helen’s investment in the contract (basis = $20,000 premiums paid) exceeds the $12,000 loan, so no gain is recognized. Therefore none of the $12,000 is includible in income.