If Cal surrenders his $100,000 universal life policy for its full cash value, what amount is considered taxable?

When an individual surrenders a universal life insurance policy, the taxable amount is determined by comparing the cash value of the policy to the total premiums paid into it. If the cash value exceeds the total premiums, the difference is taxable as income.

In this scenario, if Cal surrenders his $100,000 universal life policy and receives its full cash value, the amount that is considered taxable would be the gain he realizes from the surrender. For the selected answer to be $7,000, it implies that the cash value of the policy was $107,000, and Cal had paid $100,000 in premiums. Therefore, the taxable amount is $107,000 (cash value) - $100,000 (premiums paid) = $7,000 (taxable gain).

This concept is essential in understanding how life insurance policies operate, particularly in terms of taxation upon surrender. The amounts provided in other choices may suggest different cash value or premium amounts that do not align with this calculation or the details given in the question.