1. Life insurance death benefits paid to a named beneficiary by reason of the insured's death are generally:

Excluded from the beneficiary's gross income

26 U.S.C. 101(a) excludes from gross income amounts received under a life insurance contract paid by reason of the insured's death.

2. A Section 1035 exchange allows a policyowner to:

Exchange a life policy for another life policy or an annuity tax-free

26 U.S.C. 1035(a) provides that no gain or loss is recognized on exchanging a life contract for another life contract, an endowment or an annuity.

3. A life policy that fails the 7-pay test and becomes a modified endowment contract loses favorable treatment of:

Lifetime distributions, which are taxed gain first

26 U.S.C. 7702A defines a MEC by the 7-pay test; lifetime distributions from a MEC are taxed gain first and may face a 10% penalty before 59 1/2.

4. Benefits from an individual disability income policy whose premiums the insured paid with after-tax dollars are:

Received free of income tax

26 U.S.C. 104(a)(3) excludes amounts received through accident or health insurance for personal injuries or sickness, other than amounts attributable to employer contributions not included in income.