Which of the following statements is (are) true regarding taxation of

Which of the following statements is (are) true regarding taxation of life insurance?

I. Life insurance proceeds paid in a lump-sum to a designated beneficiary are received free of federal income taxes.
II. The policyowner must pay taxes annually on the amount by which the cash value of his or her life insurance policy has increased.
A) I only
B) II only
C) both I and II
D) neither I nor II

ANSWER

Answer: A