Enter this as life insurance so TurboTax can transfer it to the "interest" section of PA-40.
Pennsylvania says, "Any amounts reported in gross income for Federal Income Tax purposes for a retirement annuity that is not an employer sponsored retirement annuity... are reported as interest income on PA Schedule A regardless of whether the annuity payments began before January 1, 2005, or on or after January 1, 2005."
Your cost basis would be the sum of the premiums paid, even if you did not pay them. The cost basis relates to the cost of the policy.
If you enter it as life insurance, PA should not ask for a cost basis. It sounds like what you are receiving is policy dividends which are taxable earning. The cost basis would come into play if you cancel the policy and receive a cash surrender value,
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