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

Received income-tax-free by the beneficiary

Life insurance death proceeds paid in a lump sum are generally received income-tax-free by the beneficiary.

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

Grows tax-deferred while it remains in the policy

Cash value grows on a tax-deferred basis as long as it remains inside the policy.

3. A policy that fails the federal premium limits becomes a:

A modified endowment contract with less favorable distribution taxation

A modified endowment contract results from overfunding, causing distributions to be taxed on a gain-first basis with possible penalties.

4. When a nonqualified annuity pays out income each payment is:

Part return of basis and part taxable gain

The exclusion ratio treats each annuity payment as part nontaxable return of basis and part taxable gain.