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Sixteen years ago, Ms. Cole purchased a $696,000 insurance policy on her own life and named her son as sole beneficiary. She has paid $43,152

Sixteen years ago, Ms. Cole purchased a $696,000 insurance policy on her own life and named her son as sole beneficiary. She has paid $43,152 total premiums to keep this policy in force.

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  1. This year, she liquidates the policy for its $53,592 cash surrender value. Does she recognize income on the liquidation?
  2. Now assume that Ms. Cole is terminally ill. The insurance policy provides that a person with a life expectancy of less than one year can liquidate the policy and receive 80 percent of the death benefit. She does so and receives a $556,800 accelerated death benefit. Does she recognize income on the liquidation?

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