Arkansas Life and Health Insurance Practice Exam

The correct answer is A, as an installment payment, is the only way a death benefit can be 100% income tax-free. When a death benefit is paid out as an installment payment, the recipient receives regular payments over a specified period, and this helps ensure that the funds remain tax-free. In contrast, options B, C, and D do not guarantee 100% income tax-free status for the death benefit. An immediate annuity, lump sum, or payment over the insured's lifetime may involve tax implications or taxation of interest earned on the benefit, making them not fully tax-free options.