1. Life insurance death proceeds paid to a named beneficiary in a lump sum are generally:

Received income-tax-free by the beneficiary

Death benefits paid to a beneficiary are generally received free of federal income tax.

2. The cash value growth inside a permanent life policy is generally:

Tax-deferred while it remains in the policy

Cash value grows tax-deferred; gains may be taxable if the policy is surrendered for more than the cost basis.

3. A life policy classified as a Modified Endowment Contract (MEC) loses favorable tax treatment on:

Distributions and loans, which become taxable on a gain-first basis

In a MEC, lifetime distributions and loans are taxed gain-first and may incur a penalty before age 59 1/2.

4. When annuity income payments begin, the portion representing the owner's cost basis is:

Excluded from income under the exclusion ratio

The exclusion ratio returns the owner's cost basis tax-free, while the earnings portion of each payment is taxable.