A major tax advantage of life insurance is that the death benefit paid to a beneficiary is generally not included in the beneficiary’s gross income for federal income tax purposes. The IRS states that life insurance proceeds received as a beneficiary because of the insured person’s death generally are not includable in gross income and do not have to be reported. That makes option D correct. Option A is too broad because distributions of earnings can be taxable depending on the transaction, such as withdrawals above basis, policy loans after lapse, or Modified Endowment Contract distributions. Option B is also too broad; cash value growth is generally tax-deferred while inside the policy, not universally “tax free” in every situation. Option C is wrong because employer-paid life insurance can create taxable income to the employee in some group-term life situations, especially for coverage above federal exclusion limits. The exam-tested advantage is the income-tax-free death benefit. Reference topics: Life Insurance Taxation, Death Benefit Exclusion, Beneficiary Proceeds, Tax-Deferred Cash Value.