Section 7702

Section 7702 of the Internal Revenue Code sets the criteria for cash value life insurance policies to maintain their tax-advantaged status. It establishes guidelines for premiums paid and defines tests that must be satisfied for the policy's cash value to grow on a tax-deferred basis. TheCPAaid understands the importance of adhering to these guidelines to avoid triggering taxable events.

To ensure your clients' policies remain compliant, TheCPAaid includes stipulations in their policy issuance process. These stipulations serve as safeguards against accidentally making the policy a taxable event. If the client were to add more cash value in violation of Section 7702, the life insurance company would reject the excess contribution and return it to the client. This approach protects the policy from becoming a Modified Endowment Contract (MEC) with its different tax implications.

By incorporating these stipulations, TheCPAaid actively protects their clients' policies from unintentional tax consequences, ensuring that the policies maintain their intended tax advantages.

Section 7702 of the U.S. Internal Revenue Service
Key Takeaways