Perhaps some of you have heard about the changes that were made. It s been a whirlwind start to the year for the life insurance industry.
If you have you may have even heard that this will allow more money to go into the cash value of life insurance.
Insurance 7702. Section 7702 is the section of the united states internal revenue code that defines what the federal government considers a life insurance contract and that outlines how life insurance contracts are taxed. The reason the 7702 code was written is because many were using these life insurance policies as investments to get a generous tax break. The cash value accumulation test cvat or the guideline premium and corridor test gpt.
The insurance industry has had a standard set of compliance test protocols which has remained fixed for 35 years. In 1984 congress added section 7702 to the internal revenue code. This mathematical relationship between premium cash value and death benefit is often called corridor.
In this advanced markets minute we look at the changes that were made to the definition of life insurance under section 7702 of the internal revenue code. Why is a change to 7702 important. Or maybe you ve heard that it is a good thing for whole.
Under section 7702 life insurance contracts have to pass one of two tests. Section 7702 is therefore a code not a plan in and of itself. Life insurance and modified endowments under internal revenue code sections 7702 and 7702a nov 16 2020 posted by stephen king media publishing text id 49072ece online pdf ebook epub library endowments under internal revenue code sections 7702 and 7702a nov 02 2020 posted by el james public library text id f90eec96 online pdf ebook epub library internal.
In establishing the 1984 rule known as section 7702 congress was seeking to identify investment products disguised as life insurance to obtain the favorable tax treatment according to. Irc section 7702 includes a cash value accumulation test provision and a guideline premium limitation provision. But a life insurance policy is supposed to serve as a death benefit to your family or beneficiary to replace your income.
The term 7702 plans does not refer. Since publishing the section 7702 christmas miracle on january 5 th it has amassed an unbelievable 16 000 reads a testament to the degree to which the changes to section 7702 caught the industry off guard and folks wanted to read about what was going on. The section 7702 christmas miracle update.
Section 7702 imposes limitations on premiums and benefits relative to death benefits and defines what is considered life insurance for federal tax purposes. Section 7702 rules apply to any cash value life insurance policy that was issued after 1985. The bigger the corridor pre act state the more net amount at risk that a life.
The irc 7702 is a code not a plan.