Taxation During the Insured’s Lifetime

All currently issued contracts must contain elements of both risk shifting and risk distribution in order to be considered life insurance and be taxed for federal purposes according to the rules that follow. Currently issued contracts must also meet Code section 7702 requirements of either a cash value accumulation test or fall within a cash value corridor and meet certain guideline premium requirements. These tests are incredibly complex and require actuarial determinations beyond the practical ability of most practitioners. It is wise, therefore, in the case of a large policy to obtain a written assurance from the home office of the insurer that the contract will, in fact, meet the current definition of life insurance in all respects and will continue to do so.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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