An individual purchased a variable life insurance policy 10 years ago with a guaranteed death benefit of $100,000. The annual premium for this policy was $2,000 per year. The individual dies and, due to outstanding performance of the separate account, leaves a death benefit to the beneficiary of $121,000. What are the income tax consequences to that beneficiary?
A) Ordinary income tax is due on $21,000.
B) There is a long-term capital gain of $1,000.
C) Ordinary income tax is due on the $1,000. that exceeds the original cost.
D) No tax is due.
Answer: D) No tax is due.