Donative Items (LO. 2) Allison dies during the current year. She is covered by a $1,200,000 life insurance policy payable to her husband, Bob. Bob elects to receive the policy proceeds in 10 annual installments of $142,000. Complete the letter to Bob explaining the tax consequences of his installment election. Your Insurance Company Dear Bob, Regarding Allison's life insurance policy, life insurance proceeds are excluded from tax. Therefore, the $1,200,000 face value of the policy is excluded as it is received. However, the earnings on the policy during the time it is held by the insurance company are not excludable The total interest earned is $ 220,000 . As each payment on the policy is received, you will exclude 120,000 and include $ 41,000 X in gross income