Question

Hank carries a $100,000 insurance policy on his life. Premiums paid total $8,000. Dividends have totaled $6,000. Hank has left the dividends on the policy with the insurance company. During the current year, the insurance co. has credited $600 of interest on the accum. dividends to Hank's account.

a. How much income is Hank obligated to report in connection with the policy?
b. Would it make any difference if the accum. dividends equaled $9,000 instead of $6,000?

Answer 1

Hank is obligated to report $600 in income in connection with the insurance policy. If the accumulated dividends equaled $9,000 instead of $6,000, the income Hank needs to report would be higher.

Step-by-step explanation:

To determine the income Hank is obligated to report in connection with the policy, we need to consider the premiums paid and the dividends received. Hank paid $8,000 in premiums and received $6,000 in dividends. The dividends left with the insurance company do not count as income for Hank. However, the interest credited on the accumulated dividends does count as income. Since $600 of interest was credited to Hank's account, Hank is obligated to report $600 as income in connection with the policy.

If the accumulated dividends equaled $9,000 instead of $6,000, it would make a difference in the income Hank is obligated to report. The interest credited on the accumulated dividends would be higher, resulting in a higher income that Hank needs to report.