Which of the following statements about the death benefit is true?

The statement regarding the death benefit that is true is that the face amount is generally tax-free if paid as a lump sum. This is an important aspect of life insurance policies. When a life insurance policyholder passes away, the death benefit, which is the face amount of the policy, is typically distributed to the designated beneficiaries without being subject to income tax. This tax advantage is one of the significant benefits of life insurance, allowing beneficiaries to receive the full amount intended to support them without the reduction of tax liabilities.

While other options touch upon related aspects of the death benefit, they do not accurately represent the tax treatment or distribution of the death benefit. For example, it's not accurate that only the primary beneficiary receives the entire benefit in all cases, as there can be multiple beneficiaries or contingent beneficiaries involved. Additionally, while some situations can lead to estate taxation, the general rule is that life insurance death benefits are not taxed in this way when given to individual beneficiaries directly. Lastly, stating that the benefit can only be paid to the estate is misleading, as it can also be paid directly to named beneficiaries, depending on the policy terms.