Question

Brad is going to terminate his $650,000 whole life insurance policy. The $5,600 annual premium, which he hasn't paid, was due 14 days ago and he does not plan on making that payment. The policy has a CSV of $102,000 and an ACB of $48,000. In addition, he has a $40,000 policy loan that is outstanding with interest owing of $5,300, and the outstanding premium for the last 14 days is $215. When Brad terminates this policy what will the taxable gain be?

Answer 1

The taxable gain when Brad terminates his whole life insurance policy is $8,485.

Step-by-step explanation:

When Brad terminates his whole life insurance policy, the taxable gain will be calculated as follows:

• The cash surrender value (CSV) of $102,000
• The adjusted cost base (ACB) of $48,000
• The outstanding policy loan of $40,000
• The interest owing on the policy loan of $5,300
• The outstanding premium for the last 14 days of $215

By subtracting the ACB, policy loan with interest, and outstanding premium from the CSV, we get the taxable gain:

Taxable Gain = CSV - (ACB + Policy Loan + Interest + Outstanding Premium)

Taxable Gain = $102,000 - ($48,000 + $40,000 + $5,300 + $215)

Taxable Gain = $8,485

Therefore, the taxable gain when Brad terminates his whole life insurance policy is $8,485.