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Sue is age 73 and has a great deal of difficulty living independently as she suffers from severe rheumatoid arthritis. She is covered by a $400,000 life insurance policy, and her children are named as the beneficiaries. Because of her health, Sue decides to live in a nursing home, but she does not have enough income to pay her nursing home bills which are expected to total $42,000 per year. The insurance company offers disabled individuals the option of either a reduced settlement on their policies or an annuity. Given Sue's age and health she has the option of receiving $3,200 per month or a lump sum payment of $225,000. To date, Sue has paid $80,000 in premiums on the policy.

a. How much income must Sue report if she chooses the lump sum settlement?

b. How much income must Sue report if she elects the annuity?

c. How much income would Sue have to report If her nursing home bills amounted to only $36,000 per year?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M945505

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