1. Life insurance death benefits paid to a named beneficiary are generally:

Received income-tax-free

Death benefits paid because of the insured's death are generally received income-tax-free by the beneficiary under federal law.

2. The cash value inside a permanent life insurance policy generally grows:

Tax-deferred

Cash value accumulates on a tax-deferred basis, with no current income tax as long as it remains in the policy.

3. A Section 1035 exchange allows a policyowner to:

Exchange one life or annuity contract for another without immediate taxation

A 1035 exchange permits a tax-free transfer between like contracts, such as life-to-life or annuity-to-annuity, deferring gain.

4. A policy classified as a modified endowment contract (MEC) loses favorable tax treatment on:

Lifetime distributions, which are taxed on a last-in, first-out basis

A MEC results from overfunding; lifetime distributions are taxed last-in, first-out (gain first) and may incur a penalty before age 59 1/2.