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John, age 52, is overweight, smokes, and had a mild heart attack five years ago. Ignoring the advice of his physician, he refuses to exercise, lose...

3. John, age 52, is overweight, smokes, and had a mild heart attack five years ago. Ignoring the advice of his physician, he refuses to exercise, lose weight, and quit smoking. John owns a $25,000 participating ordinary life policy that he purchased 20 years ago. A life insurance agent approached John and proposed that he replace the older policy with a new life insurance policy. The agent claims the new policy is superior to the older policy that was purchased years ago. Despite John's health problems, the agent claims that John can get life insurance from his company. What factors should John consider before replacing the older policy with a new policy? 

4.Allison is trying to complete her income-tax return. A number of questions have come up about life insurance. Explain the tax treatment of each of the following.
a.Allison is the beneficiary named in her grandfather's life insurance policy. Her grandfather died this year and Allison received a lump-sum payment of $50,000. She wonders if she has to report the $50,000 as taxable income.
b.Allison purchased a $100,000 cash value life insurance policy on her own life six years ago.
This year, the cash value increased by $380. Allison wonders if the cash-value increase must be
reported as taxable income. The policy remains in force.
c.Allison's annual life insurance premium is $350. Allison itemizes her income-tax deductions. She wonders if her life insurance premium is a tax- deductible expense.
d.Allison's ordinary life insurance policy is a participating policy. This year she received $120 in policyowner dividends. She wonders if she is required to report the $120 as taxable income.

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