1. Life insurance death benefits paid to a named beneficiary in a lump sum are generally treated how for federal income tax?

Generally received income tax free

Life insurance death benefits paid as a lump sum to a beneficiary are generally received free of federal income tax.

2. The growth of cash value inside a permanent life insurance policy is generally treated how while it remains in the policy?

It accumulates on a tax-deferred basis

Cash value generally grows on a tax-deferred basis while it remains inside the policy, with taxation deferred unless the policy is surrendered or becomes a MEC.

3. A life policy funded too quickly so that it fails the federal premium limits is classified as what?

A modified endowment contract

A policy that exceeds the federal 7-pay premium limits is a modified endowment contract (MEC), changing the tax treatment of living distributions.

4. The portion of each annuity income payment representing the return of the owner's cost basis is generally treated how?

Excluded from income under the exclusion ratio

Under the exclusion ratio, the part of each annuity payment representing return of the owner's cost basis is excluded from taxable income.