Question

Navreet, age 62, owns a universal life (UL) insurance policy with a face value of $350,000. The policy is based on her own life, has an adjusted cost basis (ACB) of $78,000, and a cash surrender value (CSV) of $174,000. Navreet retires and decides to structure a collateral loan from a third party lender for $100,000, to be paid to her in instalments of $10,000 per year for the next 10 years. Which of the following statements about Navreet's loan is CORRECT? There will be no tax consequences for Navreet. Navreet must declare $10,000 income in the first year. The ACB of the policy will be increased to $88,000 in the first year. The CSV of the policy will be reduced to $74,000.

          Navreet, age 62, owns a universal life (UL) insurance policy with a face value of $350,000. The policy is based on her own life, has an adjusted cost basis (ACB) of $78,000, and a cash surrender value (CSV) of $174,000. Navreet retires and decides to structure a collateral loan from a third party lender for $100,000, to be paid to her in instalments of $10,000 per year for the next 10 years. Which of the following statements about Navreet's loan is CORRECT?
There will be no tax consequences for Navreet.
Navreet must declare $10,000 income in the first year.
The ACB of the policy will be increased to $88,000 in the first year.
The CSV of the policy will be reduced to $74,000.

Navreet, age 62, owns a universal life (UL) insurance policy with a face value of 350,000. The policy is based on her own life, has an adjusted cost basis (ACB) of78,000, and a cash surrender value (CSV) of 174,000. Navreet retires and decides to structure a collateral loan from a third party lender for100,000, to be paid to her in instalments of 10,000 per year for the next 10 years. Which of the following statements about Navreet's loan is CORRECT?
There will be no tax consequences for Navreet.
Navreet must declare10,000 income in the first year.
The ACB of the policy will be increased to 88,000 in the first year.
The CSV of the policy will be reduced to74,000.

Added by Kyle C.

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