Section 7702
What Does Section 7702 Mean?
Section 7702 of the Internal Revenue Code defines what qualifies as a life insurance contract and outlines the taxation rules for such contracts, particularly those with a cash value component. It also establishes specific limits on premiums and death benefits to ensure the contract meets life insurance criteria. This section does not apply to life insurance policies issued before 1985.
Insuranceopedia Explains Section 7702
Section 7702 limits the tax benefits available to life insurance policies by defining the criteria for what qualifies as a life insurance contract. To comply, a contract must pass either the Cash Value Accumulation Test (CVAT) or the Guideline Premium and Corridor Test (GPT). A contract passes the CVAT if its cash surrender value does not exceed the net single premium needed to fund future benefits under the policy. For the GPT, the total premiums paid to date cannot exceed the guideline premium limitation, ensuring that the contract remains within defined tax-preferred boundaries.
