Walter is terminally ill and has a 20-year level term life insurance policy with a face value of $500,000.  Walter has paid $15,000 in premiums over the last ten years.  Walter sells the term policy to a company that specializes in viatical settlements.  Walter sells the policy for $400,000.  What is the tax impact to Walter and the viatical settlement company at Walter's death? Walter has taxable income of $385,000, company has taxable income of $100,000. Walter has taxable income of $400,000, company has taxable income of $100,000. Walter has taxable income of $0, company has taxable income of $100,000. Walter has taxable income of $0, company has taxable income of $500,000.

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Walter is terminally ill and has a 20-year level term life insurance policy with a face value of $500,000.  Walter has paid $15,000 in premiums over the last ten years.  Walter sells the term policy to a company that specializes in viatical settlements.  Walter sells the policy for $400,000.  What is the tax impact to Walter and the viatical settlement company at Walter's death?

Walter has taxable income of $385,000, company has taxable income of $100,000.

Walter has taxable income of $400,000, company has taxable income of $100,000.

Walter has taxable income of $0, company has taxable income of $100,000.

Walter has taxable income of $0, company has taxable income of $500,000.

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