Coraline owns a $250,000 whole life insurance policy. She purchased the policy last year and does not have any funds accumulated in her cash surrender value (CSV). On December 30, Coraline assigns the policy to the cancer foundation, and she plans on continuing to pay the $200 monthly premium. Coraline calls her accountant James to ask him how much of her donation she will be able to use to obtain a charitable tax credit this year.

Coraline owns a $250,000 whole life insurance policy. She purchased the policy last year and does not have any funds accumulated in her cash surrender value (CSV). On December 30, Coraline assigns the policy to the cancer foundation, and she plans on continuing to pay the $200 monthly premium. Coraline calls her accountant James to ask him how much of her donation she will be able to use to obtain a charitable tax credit this year.
A . $0
B . $200
C . $2,400
D . $250,000

View Answer

Answer: D

Explanation:

When Coraline assigns her whole life insurance policy to a charitable organization, she can claim the entire policy’s fair market value as a charitable donation for tax credit purposes, which is generally the death benefit if there is no significant accumulated cash value. Since Coraline continues to pay the premiums, the policy remains in force. Thus, she can claim the $250,000 face value of the policy as her charitable donation, which is eligible for a tax credit. Monthly premium amounts (Options B and C) or a lack of CSV (Option A) do not limit her eligibility for the credit based on the policy’s value. Therefore, Option D is correct​.