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

Received free of federal income tax

Lump-sum life insurance death benefits paid to a named beneficiary are generally not subject to federal income tax.

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

Tax-deferred while it remains within the policy

Cash value generally accumulates on a tax-deferred basis as long as the gains remain inside the policy.

3. A life insurance policy that fails the federal 7-pay test is classified as a:

Modified endowment contract

A policy that is funded faster than the 7-pay test allows becomes a modified endowment contract, changing the tax treatment of distributions.

4. When an annuity is annuitized, the portion of each payment that represents the return of the owner's cost basis is:

Not taxable, under the exclusion ratio

The exclusion ratio determines the portion of each annuity payment that is a tax-free return of the owner's basis, with the rest taxable.