Update on IRC Section 7702 Revisions & Life Insurance Limits

The Consolidated Appropriations Act, signed into law on December 27, 2020, includes changes to the tax code that will reduce the minimum interest assumptions insurance companies may use.  These changes will affect the definition of insurance including:

• The Guideline Premium Test and the Cash Value Accumulation Test under Internal Revenue Code (IRC) Section 7702.
• Modified Endowment Contracts under IRC Section 7702A

Once implemented, the reduced interest rate assumptions will allow for increased premiums per thousand for new permanent life insurance policies sold utilizing the newly revised rates.

While we don’t know the full impact of these changes, this is a positive impact for the Insurance Industry during this elongated low-interest-rate environment.  We will make sure to update as we see adjustments if any, to current or newly developed products implementing this new rate structure.