John Rivera owns a $300,000 level-term life policy which he purchase five years ago. He has paid premiums of over $500 per year for the past five years. He also owns a $100,000 whole life policy which he purchased fifteen years ago. He has paid premiums of $2,000 per year for the past fifteen years, and now the policy has a cash surrender value of $40,000. Over the years
John Rivera owns a $300,000 level-term life policy which he purchase five years ago. He has paid premiums of over $500 per year for the past five years. He also owns a $100,000 whole life policy which he purchased fifteen years ago. He has paid premiums of $2,000 per year for the past fifteen years, and now the policy has a cash surrender value of $40,000. Over the years, the whole life policy has paid cash dividends to John. The cumulative dividends paid to John since inception totals $5,000.
John has decided to cancel his $300,000 level-term policy. Which statement is true?
John has a taxable gain of $2,500
John has a taxable gain of $297,500
John would have no taxable gain
John would have a taxable gain only if he died while the insurance was in force
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