Section 7702

Updated: 09 June 2023

What Does Section 7702 Mean?

Section 7702 refers to a section in the Internal Revenue Code, or the tax code of the United States, that details what constitutes a life insurance contract, explains how a life insurance contract is taxed, especially if the contract has cash value component, and sets certain limitations on premiums and death benefits. It does not apply to life insurance policies issued before 1985.

Insuranceopedia Explains Section 7702

Section 7702 limits the tax benefits given to a life insurance policy by clearly defining what a life insurance contract is. A life insurance contract needs to pass either the cash value accumulation test (CVAT) or the guideline premium and corridor test (GPT). A life insurance contract can pass the CVAT by having a cash surrender value that will not exceed the net single premium, which will fund future benefits under the contract. For the GPT, the sum of the premiums paid to date must not exceed the guideline premium limitation.

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