As beneficiary, Kathryn receives $800 monthly from her deceased husband’s life insurance under a fixed amount option. Each payment consists partly of principal (proceeds) and partly of interest. How is this income taxed?

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As beneficiary, Kathryn receives $800 monthly from her deceased husband’s life insurance under a fixed amount option. Each payment consists partly of principal (proceeds) and partly of interest. How is this income taxed?

A) The portion of each payment consisting of principal is taxed; the remainder is tax free.

B) Each payment is fully taxed.

C) Each payment is received fully tax free.

D) The portion of each payment consisting of interest is taxed; the remainder is tax free.

Answer: D) The portion of each payment consisting of interest is taxed; the remainder is tax free.

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