Albert had a terminal illness which required almost constant nursing care for the remaining two years of his estimated life, according to his doctor. albert had a life insurance policy with a face amount of $100,000. albert had paid $25,000 of premiums on the policy. the insurance company has offered to pay him $80,000 to cancel the policy, although its cash surrender value was only $55,000. albert accepted the $80,000. albert used $15,000 to pay his medical expenses. albert made a miraculous recovery and lived another 20 years. as a result of cashing in the policy: albert must recognize $55,000 of gross income, but he has $15,000 of deductible medical expenses. albert must recognize $65,000 ($80,000 – $15,000) of gross income. albert must recognize $40,000 ($80,000 – $25,000 – $15,000) of gross income. albert is not required to recognize any gross income because of his terminal illness. none of these.