Assume for this question only that Kenny and Melissa had the baby today. When Ke

Question

Assume for this question only that Kenny and Melissa had the baby today. When Kenny returned home, Kenny’s neighbor, Stue Farm, came over. Stue is the local insurance salesman and he immediately convinced Kenny he needed to buy a new life insurance policy on his life. The policy has a $100,000 death benefit. Melissa is the owner, the policy is on Kenny’s life, and Kole is the beneficiary. Kenny paid his first premium payment then had a heart attack and died.   Which of the following statements is correct?

A) The interpolated terminal reserve plus any unearned premium will be included in Kenny’s gross estate.

B) The death benefit will be included in Kenny’s gross estate.

C) The replacement cost will be included in Kenny’s gross estate.

Please provide an explanation. Thank you.

Explanation / Answer

The correct option is B. The death benefit will be included in Kenny's gross estate. The reason is since Melissa is the owner and the legal spouse of Kenny and can therefore claim the benefit arising out of the life insurance policy of Kenny.

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