Does section 7702 apply to life insurance?

Section 7702 applies only to life insurance contracts issued after the year 1984. Section 7702 of the Tax Code differentiates between income from a genuine insurance product and income from an investment vehicle. Certain types of permanent life insurance build up a cash value over time.

What is section 7702 in the Internal Revenue Code?

The majority of life insurance policies today meet the criteria of this code, so this is seldom an issue for policyholders. Section 7702 in the Internal Revenue Code was created in response to the large number of life insurance policyholders who were using cash value life insurance as a tax shelter.

What are The 7702 rules for cash value life insurance?

Section 7702 rules apply to any cash value life insurance policy that was issued after 1985, based on the following guidelines: There are two “tests” to qualify for tax advantages: a cash value accumulation test (CVAT) and a guideline premium test (GPT). If a contract does not meet the guidelines, the proceeds from the policy are treated as income.