Settlement of Life Insurance Policy.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 her 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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