What does 7702 mean?

cash-value life insurance policy
A 7702 plan refers to a cash-value life insurance policy, which is a life insurance policy that has a cash value beyond the death benefit. When you pay premiums into these kinds of policies, some of the premium goes to the death benefit and some of the premium goes to the policy’s cash value.

What is Section 7702 of the Internal Revenue Code?

Section 7702 of the U.S. Internal Revenue Service (IRS) Tax Code defines what the federal government considers to be a legitimate life insurance contract and is used to determine how the proceeds are taxed. The proceeds of policies that do not meet the government’s definition are taxable as ordinary income.

What happens if a life insurance policy fails to meet the federal statutory definition of life insurance?

This new definition controls the tax status of life insurance products.” If a life insurance contract fails to qualify under the definition, then the policyholder and the beneficiary are subject to federal income taxation on certain cash value accumula- tions and on death benefits paid. ‘

What is a guideline premium limitation?

The guideline premium and corridor test (GPT) is a test used to determine whether an insurance product is taxable as insurance or as an investment. The amount of premiums that can be paid into an insurance policy relative to the policy’s death benefit is limited by the guideline premium and corridor test (GPT).

How can we avoid MEC?

To avoid being declared a modified endowment contract, a life insurance policy must meet the “7-pay” test. This test calculates the annual premium a life insurance policy would need to be paid up after seven level annual premiums. (When a life insurance policy is “paid up,” no further premiums are due.)

Which is better Cvat or GPT?

The basic difference between these two tests is that CVAT limits the cash value relative to the death benefit, while GPT limits premiums paid relative to the death benefit. If an insurance policy fails either of these tests, then it is not considered a life insurance policy, and all income tax benefits are eliminated.

What is 7-pay MEC limit?

The 7-pay premium limit is a level annual amount of money that can be put into a cash value life insurance policy during each of the first seven policy years (or the first seven years after a material change in the policy, e.g. an increase in the face amount).

What is a 7-pay premium?

The seven-pay test determines whether the total amount of premiums paid into a life insurance policy, within the first seven years, is more than what was required to have the policy considered paid up in seven years.

How do you use infinite banking concept?

In Nash’s infinite banking concept (IBC), the cash surrender value(s) of whole life insurance policies act as collateral for a loan. In doing so, the borrower incurs a debt, which he has to pay back with interest and within a given period of time..

What is section 7702 of the Internal Revenue Code?

Internal Revenue Code Section 7702. Section 7702 is a portion of the Internal Revenue Code that describes certain conditions that life policies should satisfy in order to qualify as life insurance contract that has tax advantages.

What is the IRS tax code?

The Internal Revenue Code (IRC) refers to Title 26 of the U.S. Code, the official “consolidation and codification of the general and permanent laws of the United States,” as the Code’s preface explains. Commonly referred to as the IRS code or IRS tax code, the laws in Title 26 are enforced by the Internal Revenue Service (IRS).

What are federal tax codes?

A tax code is a federal government document, numbering thousands of pages that details the rules individuals and businesses must follow in remitting a percentage of their incomes to the federal or state government. The tax code is used as a source by tax lawyers who bear the responsibility of interpreting it for the public.