Ira Munro owns a life insurance policy that will pay $750,000 to his granddaughter Ginnie upon Ira's death. To date, Ira has paid $69,200 total premiums on the policy, which has a current cash surrender value of $82,500.
a. Assume that Ira dies and Ginnie receives a $750,000 payment from the insurance company. How much of the payment does Ginnie include in her gross income?
b. Assume that Ira liquidates the policy for its cash surrender value and receives an $82,500 payment from the insurance company. How much of the payment does Ira include in his gross income?