When a life insurance company pays a death benefit, how much of the proceeds is added to the beneficiary's gross income for federal income tax purposes if the cash value was $15,000 and total premiums-paid equaled $10,000?

When a life insurance company pays a death benefit to a beneficiary, the entire proceeds are generally received income tax-free. This means that regardless of the cash value or total premiums paid into the policy, the beneficiary does not have to include the death benefit amount in their gross income for federal income tax purposes.

In this case, even though there is a cash value of $15,000 and total premiums paid of $10,000, these figures are not relevant when determining the tax treatment of the death benefit. The IRS allows beneficiaries to receive these proceeds without incurring any tax liability, which is one of the key benefits of life insurance. Therefore, the correct choice is that nothing is added to the gross income of the beneficiary for tax purposes.

This tax treatment is designed to protect the heirs from the financial burden of taxes on the benefit, allowing them to receive the full amount intended to provide financial support.