How much of Bob's cash value from his life insurance policy is considered taxable if he surrenders it?

To determine how much of Bob's cash value from his life insurance policy is considered taxable upon surrender, it's important to understand the tax implications of life insurance policies. Generally, the cash value of a life insurance policy grows tax-deferred until it's withdrawn or surrendered. When a policyholder surrenders the policy, the amount that exceeds the total premiums paid into the policy is considered taxable income.

If the total premiums Bob has paid into his life insurance policy equals a specific amount, and if the cash value at surrender is greater than that, the difference between the cash value and the total premiums is the portion that is taxable.

In this case, if Bob’s cash value at the time of surrender is $3,000 and he has paid $1,000 in premiums, the taxable amount would be $2,000, as it represents the gain on the policy. This amount reflects the earnings on the policy beyond what Bob originally invested.

Thus, when surrendering the life insurance policy, $2,000 would be considered taxable income since it exceeds the premiums paid, making the correct answer the amount calculated.