---
kind: "section"
citation: "26 U.S.C. § 7702"
title: "26"
title_heading: "Internal Revenue Code"
number: "7702"
heading: "Life insurance contract defined"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/7702"
units:
  - "Subtitle F — Procedure and Administration"
  - "Chapter 79 — Definitions"
---

# §7702. Life insurance contract defined

- (a) **General rule—** For purposes of this title, the term “life insurance contract” means any [contract](/usc/26/101.md?p=f-3-A) which is a life insurance contract under the applicable law, but only if such [contract](/usc/26/101.md?p=f-3-A)—
  - (1) meets the cash value accumulation test of [subsection (b)](#b), or
  - (2)
    - (A) meets the guideline premium requirements of [subsection (c)](#c), and
    - (B) falls within the cash value corridor of [subsection (d)](#d).
- (b) **Cash value accumulation test for subsection (a)(1)—**
  - (1) **In general—** A [contract](/usc/26/101.md?p=f-3-A) meets the cash value accumulation test of this subsection if, by the terms of the [contract](/usc/26/101.md?p=f-3-A), the cash surrender value of such [contract](/usc/26/101.md?p=f-3-A) may not at any time exceed the net single premium which would have to be paid at such time to fund [future benefits](#f-4) under the [contract](/usc/26/101.md?p=f-3-A).
  - (2) **Rules for applying paragraph (1)—** Determinations under [paragraph (1)](#b-1) shall be made—
    - (A) on the basis of interest at the greater of the [applicable accumulation test minimum rate](#b-3) or the rate or rates guaranteed on issuance of the [contract](/usc/26/101.md?p=f-3-A),
    - (B) on the basis of the rules of subparagraph (B)(i) (and, in the case of [qualified additional benefits](#f-5-A), subparagraph (B)(ii)) of [subsection (c)(3)](#c-3), and
    - (C) by taking into account under subparagraphs [(A)](#e-1-A) and [(D)](#e-1-D) of subsection (e)(1) only current and future [death benefits](#f-3) and [qualified additional benefits](#f-5-A).
  - (3) **Applicable accumulation test minimum rate—** For purposes of [paragraph (2)(A)](#b-2-A), the term “applicable accumulation test minimum rate” means the lesser of—
    - (A) an annual effective rate of 4 percent, or
    - (B) the [insurance interest rate](#f-11-A) (as defined in [subsection (f)(11)](#f-11)) in effect at the time the [contract](/usc/26/101.md?p=f-3-A) is issued.
- (c) **Guideline premium requirements—** For purposes of this section—
  - (1) **In general—** A [contract](/usc/26/101.md?p=f-3-A) meets the guideline premium requirements of this subsection if the sum of the [premiums paid](#f-1-A) under such [contract](/usc/26/101.md?p=f-3-A) does not at any time exceed the [guideline premium limitation](#c-2) as of such time.
  - (2) **Guideline premium limitation—** The term “guideline premium limitation” means, as of any date, the greater of—
    - (A) the [guideline single premium](#c-3-A), or
    - (B) the sum of the [guideline level premiums](#c-4) to such date.
  - (3) **Guideline single premium—**
    - (A) **In general—** The term “guideline single premium” means the premium at issue with respect to [future benefits](#f-4) under the [contract](/usc/26/101.md?p=f-3-A).
    - (B) **Basis on which determination is made—** The determination under [subparagraph (A)](#c-3-A) shall be based on—
      - (i) reasonable mortality charges which meet the requirements prescribed in regulations to be promulgated by the [Secretary](/usc/26/7701.md?p=a-11-B) or that do not exceed the mortality charges specified in the [prevailing commissioners](#f-10)’ standard tables as defined in [subsection (f)(10)](#f-10),
      - (ii) any reasonable charges (other than mortality charges) which (on the basis of the company’s experience, if any, with respect to similar [contracts](/usc/26/101.md?p=f-3-A)) are reasonably expected to be actually paid, and
      - (iii) interest at the greater of [the applicable guideline premium minimum rate](#c-4) or the rate or rates guaranteed on issuance of the [contract](/usc/26/101.md?p=f-3-A).
    - (C) **When determination made—** Except as provided in [subsection (f)(7)](#f-7), the determination under [subparagraph (A)](#c-3-A) shall be made as of the time the [contract](/usc/26/101.md?p=f-3-A) is issued.
    - (D) **Special rules for subparagraph (B)(ii)—**
      - (i) **Charges not specified in the contract—** If any charge is not specified in the [contract](/usc/26/101.md?p=f-3-A), the amount taken into account under [subparagraph (B)(ii)](#c-3-B-ii) for such charge shall be zero.
      - (ii) **New companies, etc.** If any company does not have adequate experience for purposes of the determination under [subparagraph (B)(ii)](#c-3-B-ii), to the extent provided in regulations, such determination shall be made on the basis of the industry-wide experience.
    - (E) **Applicable guideline premium minimum rate—** For purposes of [subparagraph (B)(iii)](#c-3-B-iii), the term “applicable guideline premium minimum rate” means the [applicable accumulation test minimum rate](#b-3) (as defined in [subsection (b)(3)](#b-3)) plus 2 percentage points.
  - (4) **Guideline level premium—** The term “guideline level premium” means the level annual amount, payable over a period not ending before the [insured](/usc/26/101.md?p=j-5-B) attains age 95, computed on the same basis as the [guideline single premium](#c-3-A), except that [paragraph (3)(B)(iii)](#c-3-B-iii) shall be applied by substituting “the [applicable accumulation test minimum rate](#b-3)” for “the applicable guideline premium minimum rate”.
- (d) **Cash value corridor for purposes of subsection (a)(2)(B)—** For purposes of this section—
  - (1) **In general—** A [contract](/usc/26/101.md?p=f-3-A) falls within the cash value corridor of this subsection if the [death benefit](#f-3) under the [contract](/usc/26/101.md?p=f-3-A) at any time is not less than the [applicable percentage](/usc/26/101.md?p=f-3-C) of the cash surrender value.
  - (2) **Applicable percentage—**

    | In the case of an [insured](/usc/26/101.md?p=j-5-B)<br>with an attained age as<br>of the beginning of the<br>[contract year](/usc/26/7702A.md?p=e-2) of: |  | The [applicable percentage](/usc/26/101.md?p=f-3-C)<br>shall decrease by a<br>ratable portion for each<br>full year: |  |
    | --- | --- | --- | --- |
    | More than: | But not<br>more than: | From: | To: |
    | 0 | 40 | 250 | 250 |
    | 40 | 45 | 250 | 215 |
    | 45 | 50 | 215 | 185 |
    | 50 | 55 | 185 | 150 |
    | 55 | 60 | 150 | 130 |
    | 60 | 65 | 130 | 120 |
    | 65 | 70 | 120 | 115 |
    | 70 | 75 | 115 | 105 |
    | 75 | 90 | 105 | 105 |
    | 90 | 95 | 105 | 100. |

- (e) **Computational rules—**
  - (1) **In general—** For purposes of this section (other than [subsection (d)](#d))—
    - (A) the [death benefit](#f-3) (and any qualified additional benefit) shall be deemed not to increase,
    - (B) the maturity date, [including](/usc/26/7701.md?p=c) the date on which any benefit described in [subparagraph (C)](#e-1-C) is payable, shall be deemed to be no earlier than the day on which the [insured](/usc/26/101.md?p=j-5-B) attains age 95, and no later than the day on which the [insured](/usc/26/101.md?p=j-5-B) attains age 100,
    - (C) the [death benefits](#f-3) shall be deemed to be provided until the maturity date determined by taking into account [subparagraph (B)](#e-1-B), and
    - (D) the amount of any endowment benefit (or sum of endowment benefits, [including](/usc/26/7701.md?p=c) any cash surrender value on the maturity date determined by taking into account [subparagraph (B)](#e-1-B)) shall be deemed not to exceed the least amount payable as a [death benefit](#f-3) at any time under the [contract](/usc/26/101.md?p=f-3-A).
  - (2) **Limited increases in death benefit permitted—** Notwithstanding [paragraph (1)(A)](#e-1-A)—
    - (A) for purposes of computing the [guideline level premium](#c-4), an increase in the [death benefit](#f-3) which is provided in the [contract](/usc/26/101.md?p=f-3-A) may be taken into account but only to the extent necessary to prevent a decrease in the excess of the [death benefit](#f-3) over the cash surrender value of the [contract](/usc/26/101.md?p=f-3-A),
    - (B) for purposes of the cash value accumulation test, the increase described in [subparagraph (A)](#e-2-A) may be taken into account if the [contract](/usc/26/101.md?p=f-3-A) will meet such test at all times assuming that the net level reserve (determined as if level annual premiums were paid for the [contract](/usc/26/101.md?p=f-3-A) over a period not ending before the [insured](/usc/26/101.md?p=j-5-B) attains age 95) is substituted for the net single premium, and
    - (C) for purposes of the cash value accumulation test, the [death benefit](#f-3) increases may be taken into account if the [contract](/usc/26/101.md?p=f-3-A)—
      - (i) has an initial [death benefit](#f-3) of $5,000 or less and a maximum [death benefit](#f-3) of $25,000 or less,
      - (ii) provides for a fixed predetermined annual increase not to exceed 10 percent of the initial [death benefit](#f-3) or 8 percent of the [death benefit](#f-3) at the end of the preceding year, and
      - (iii) was purchased to cover payment of burial expenses or in connection with prearranged funeral expenses.

    For purposes of [subparagraph (C)](#e-2-C), the initial [death benefit](#f-3) of a [contract](/usc/26/101.md?p=f-3-A) shall be determined by treating all [contracts](/usc/26/101.md?p=f-3-A) issued to the same [contract](/usc/26/101.md?p=f-3-A) owner as 1 [contract](/usc/26/101.md?p=f-3-A).

- (f) **Other definitions and special rules—** For purposes of this section—
  - (1) **Premiums paid—**
    - (A) **In general—** The term “premiums paid” means the premiums paid under the [contract](/usc/26/101.md?p=f-3-A) less amounts (other than amounts includible in gross income) to which [section 72(e)](/usc/26/72.md?p=e) applies and less any excess premiums with respect to which there is a distribution described in subparagraph [(B)](#f-7-B) or [(E)](#f-7-E) of paragraph (7) and any other amounts received with respect to the [contract](/usc/26/101.md?p=f-3-A) which are specified in regulations.
    - (B) **Treatment of certain premiums returned to policyholder—** If, in order to comply with the requirements of [subsection (a)(2)(A)](#a-2-A), any portion of any premium paid during any [contract year](/usc/26/7702A.md?p=e-2) is returned by the insurance company (with interest) within 60 days after the end of a [contract year](/usc/26/7702A.md?p=e-2), the amount so returned (excluding interest) shall be deemed to reduce the sum of the [premiums paid](#f-1-A) under the [contract](/usc/26/101.md?p=f-3-A) during such year.
    - (C) **Interest returned includible in gross income—** Notwithstanding the provisions of [section 72(e)](/usc/26/72.md?p=e), the amount of any interest returned as provided in [subparagraph (B)](#f-1-B) shall be includible in the gross income of the recipient.
  - (2) **Cash values—**
    - (A) **Cash surrender value—** The cash surrender value of any [contract](/usc/26/101.md?p=f-3-A) shall be its cash value determined without regard to any surrender charge, policy loan, or reasonable termination dividends.
    - (B) **Net surrender value—** The net surrender value of any [contract](/usc/26/101.md?p=f-3-A) shall be determined with regard to surrender charges but without regard to any policy loan.
  - (3) **Death benefit—** The term “death benefit” means the amount payable by reason of the death of the [insured](/usc/26/101.md?p=j-5-B) (determined without regard to any [qualified additional benefits](#f-5-A)).
  - (4) **Future benefits—** The term “future benefits” means [death benefits](#f-3) and endowment benefits.
  - (5) **Qualified additional benefits—**
    - (A) **In general—** The term “qualified additional benefits” means any—
      - (i) guaranteed insurability,
      - (ii) accidental death or disability benefit,
      - (iii) family term coverage,
      - (iv) disability waiver benefit, or
      - (v) other benefit prescribed under regulations.
    - (B) **Treatment of qualified additional benefits—** For purposes of this section, [qualified additional benefits](#f-5-A) shall not be treated as [future benefits](#f-4) under the [contract](/usc/26/101.md?p=f-3-A), but the charges for such benefits shall be treated as [future benefits](#f-4).
    - (C) **Treatment of other additional benefits—** In the case of any additional benefit which is not a qualified additional benefit—
      - (i) such benefit shall not be treated as a future benefit, and
      - (ii) any charge for such benefit which is not prefunded shall not be treated as a premium.
  - (6) **Premium payments not disqualifying contract—** The payment of a premium which would result in the sum of the [premiums paid](#f-1-A) exceeding the [guideline premium limitation](#c-2) shall be disregarded for purposes of [subsection (a)(2)](#a-2) if the amount of such premium does not exceed the amount necessary to prevent the termination of the [contract](/usc/26/101.md?p=f-3-A) on or before the end of the [contract year](/usc/26/7702A.md?p=e-2) (but only if the [contract](/usc/26/101.md?p=f-3-A) will have no cash surrender value at the end of such extension period).
  - (7) **Adjustments—**
    - (A) **In general—** If there is a change in the benefits under (or in other terms of) the [contract](/usc/26/101.md?p=f-3-A) which was not reflected in any previous determination or adjustment made under this section, there shall be proper adjustments in future determinations made under this section.
    - (B) **Rule for certain changes during first 15 years—** If—
      - (i) a change described in [subparagraph (A)](#f-7-A) reduces benefits under the [contract](/usc/26/101.md?p=f-3-A),
      - (ii) the change occurs during the 15-year period beginning on the issue date of the [contract](/usc/26/101.md?p=f-3-A), and
      - (iii) a cash distribution is made to the policyholder as a result of such change,

      [section 72](/usc/26/72.md) (other than subsection (e)(5) thereof) shall apply to such cash distribution to the extent it does not exceed the recapture ceiling determined under subparagraph [(C)](#f-7-C) or [(D)](#f-7-D) (whichever applies).

    - (C) **Recapture ceiling where change occurs during first 5 years—** If the change referred to in [subparagraph (B)(ii)](#f-7-B-ii) occurs during the 5-year period beginning on the issue date of the [contract](/usc/26/101.md?p=f-3-A), the recapture ceiling is—
      - (i) in the case of a [contract](/usc/26/101.md?p=f-3-A) to which [subsection (a)(1)](#a-1) applies, the excess of—
        - (I) the cash surrender value of the [contract](/usc/26/101.md?p=f-3-A), immediately before the reduction, over
        - (II) the net single premium (determined under [subsection (b)](#b)), immediately after the reduction, or
      - (ii) in the case of a [contract](/usc/26/101.md?p=f-3-A) to which [subsection (a)(2)](#a-2) applies, the greater of—
        - (I) the excess of the aggregate [premiums paid](#f-1-A) under the [contract](/usc/26/101.md?p=f-3-A), immediately before the reduction, over the [guideline premium limitation](#c-2) for the [contract](/usc/26/101.md?p=f-3-A) (determined under [subsection (c)(2)](#c-2), taking into account the adjustment described in [subparagraph (A)](#f-7-A)), or
        - (II) the excess of the cash surrender value of the [contract](/usc/26/101.md?p=f-3-A), immediately before the reduction, over the cash value corridor of [subsection (d)](#d) (determined immediately after the reduction).
    - (D) **Recapture ceiling where change occurs after 5th year and before 16th year—** If the change referred to in [subparagraph (B)](#f-7-B) occurs after the 5-year period referred to under [subparagraph (C)](#f-7-C), the recapture ceiling is the excess of the cash surrender value of the [contract](/usc/26/101.md?p=f-3-A), immediately before the reduction, over the cash value corridor of [subsection (d)](#d) (determined immediately after the reduction and whether or not [subsection (d)](#d) applies to the [contract](/usc/26/101.md?p=f-3-A)).
    - (E) **Treatment of certain distributions made in anticipation of benefit reductions—** Under regulations prescribed by the [Secretary](/usc/26/7701.md?p=a-11-B), [subparagraph (B)](#f-7-B) shall apply also to any distribution made in anticipation of a reduction in benefits under the [contract](/usc/26/101.md?p=f-3-A). For purposes of the preceding sentence, appropriate adjustments shall be made in the provisions of subparagraphs [(C)](#f-7-C) and [(D)](#f-7-D); and any distribution which reduces the cash surrender value of a [contract](/usc/26/101.md?p=f-3-A) and which is made within 2 years before a reduction in benefits under the [contract](/usc/26/101.md?p=f-3-A) shall be treated as made in anticipation of such reduction.
  - (8) **Correction of errors—** If the [taxpayer](/usc/26/7701.md?p=a-14) establishes to the satisfaction of the [Secretary](/usc/26/7701.md?p=a-11-B) that—
    - (A) the requirements described in [subsection (a)](#a) for any [contract year](/usc/26/7702A.md?p=e-2) were not satisfied due to reasonable error, and
    - (B) reasonable steps are being taken to remedy the error,

    the [Secretary](/usc/26/7701.md?p=a-11-B) may waive the failure to satisfy such requirements.

  - (9) **Special rule for variable life insurance contracts—** In the case of any [contract](/usc/26/101.md?p=f-3-A) which is a variable [contract](/usc/26/101.md?p=f-3-A) (as defined in [section 817](/usc/26/817.md)), the determination of whether such [contract](/usc/26/101.md?p=f-3-A) meets the requirements of [subsection (a)](#a) shall be made whenever the [death benefits](#f-3) under such [contract](/usc/26/101.md?p=f-3-A) change but not less frequently than once during each 12-month period.
  - (10) **Prevailing commissioners’ standard tables—** For purposes of [subsection (c)(3)(B)(i)](#c-3-B-i), the term “prevailing commissioners’ standard tables” means the most recent [commissioners](/usc/26/7701.md?p=a-13)’ standard tables prescribed by the National Association of Insurance [Commissioners](/usc/26/7701.md?p=a-13) which are permitted to be used in computing reserves for that type of [contract](/usc/26/101.md?p=f-3-A) under the insurance laws of at least 26 [States](/usc/26/7701.md?p=a-10) when the [contract](/usc/26/101.md?p=f-3-A) was issued. If the prevailing commissioners’ standard tables as of the beginning of any calendar year (hereinafter in this paragraph referred to as the “year of change”) are different from the prevailing commissioners’ standard tables as of the beginning of the preceding calendar year, the issuer may use the prevailing commissioners’ standard tables as of the beginning of the preceding calendar year with respect to any [contract](/usc/26/101.md?p=f-3-A) issued after the change and before the close of the 3-year period beginning on the first day of the year of change.
  - (11) **Insurance interest rate—** For purposes of this section—
    - (A) **In general—** The term “insurance interest rate” means, with respect to any [contract](/usc/26/101.md?p=f-3-A) issued in any calendar year, the lesser of—
      - (i) the section 7702 valuation interest rate for such calendar year (or, if such calendar year is not an [adjustment year](#f-11-D), the most recent [adjustment year](#f-11-D)), or
      - (ii) the section 7702 applicable Federal interest rate for such calendar year (or, if such calendar year is not an [adjustment year](#f-11-D), the most recent [adjustment year](#f-11-D)).
    - (B) **Section 7702 valuation interest rate—** The term “section 7702 valuation interest rate” means, with respect to any [adjustment year](#f-11-D), the prescribed U.S. valuation interest rate for life insurance with guaranteed durations of more than 20 years (as defined in the National Association of Insurance [Commissioners](/usc/26/7701.md?p=a-13)’ Standard Valuation Law) as effective in the calendar year immediately preceding such [adjustment year](#f-11-D).
    - (C) **Section 7702 applicable Federal interest rate—** The term “section 7702 applicable Federal interest rate” means, with respect to any [adjustment year](#f-11-D), the average (rounded to the nearest whole percentage point) of the applicable Federal mid-term rates (as defined in [section 1274(d)](/usc/26/1274.md?p=d) but based on annual compounding) effective as of the beginning of each of the calendar months in the most recent 60-month period ending before the second calendar year prior to such [adjustment year](#f-11-D).
    - (D) **Adjustment year—** The term “adjustment year” means the calendar year following any calendar year that [includes](/usc/26/7701.md?p=c) the effective date of a change in the prescribed U.S. valuation interest rate for life insurance with guaranteed durations of more than 20 years (as defined in the National Association of Insurance [Commissioners](/usc/26/7701.md?p=a-13)’ Standard Valuation Law).
    - (E) **Transition rule—** Notwithstanding [subparagraph (A)](#f-11-A), the [insurance interest rate](#f-11-A) shall be 2 percent in the case of any [contract](/usc/26/101.md?p=f-3-A) which is issued during the period that—
      - (i) begins on January 1, 2021, and
      - (ii) ends immediately before the beginning of the first [adjustment year](#f-11-D) that beings[^1] after December 31, 2021.
- (g) **Treatment of contracts which do not meet subsection (a) test—**
  - (1) **Income inclusion—**
    - (A) **In general—** If at any time any [contract](/usc/26/101.md?p=f-3-A) which is a [life insurance contract](#a) under the applicable law does not meet the definition of [life insurance contract](#a) under [subsection (a)](#a), the [income on the contract](#g-1-B) for any [taxable year](/usc/26/7701.md?p=a-23) of the policyholder shall be treated as ordinary income received or accrued by the policyholder during such year.
    - (B) **Income on the contract—** For purposes of this paragraph, the term “income on the contract” means, with respect to any [taxable year](/usc/26/7701.md?p=a-23) of the policyholder, the excess of—
      - (i) the sum of—
        - (I) the increase in the net surrender value of the [contract](/usc/26/101.md?p=f-3-A) during the [taxable year](/usc/26/7701.md?p=a-23), and
        - (II) the cost of life insurance protection provided under the [contract](/usc/26/101.md?p=f-3-A) during the [taxable year](/usc/26/7701.md?p=a-23), over
      - (ii) the [premiums paid](#f-1-A) (as defined in [subsection (f)(1)](#f-1)) under the [contract](/usc/26/101.md?p=f-3-A) during the [taxable year](/usc/26/7701.md?p=a-23).
    - (C) **Contracts which cease to meet definition—** If, during any [taxable year](/usc/26/7701.md?p=a-23) of the policyholder, a [contract](/usc/26/101.md?p=f-3-A) which is a [life insurance contract](#a) under the applicable law ceases to meet the definition of [life insurance contract](#a) under [subsection (a)](#a), the [income on the contract](#g-1-B) for all prior [taxable years](/usc/26/7701.md?p=a-23) shall be treated as received or accrued during the [taxable year](/usc/26/7701.md?p=a-23) in which such cessation occurs.
    - (D) **Cost of life insurance protection—** For purposes of this paragraph, the cost of life insurance protection provided under the [contract](/usc/26/101.md?p=f-3-A) shall be the lesser of—
      - (i) the cost of individual insurance on the life of the [insured](/usc/26/101.md?p=j-5-B) as determined on the basis of uniform premiums (computed on the basis of 5-year age brackets) prescribed by the [Secretary](/usc/26/7701.md?p=a-11-B) by regulations, or
      - (ii) the mortality charge (if any) stated in the [contract](/usc/26/101.md?p=f-3-A).
  - (2) **Treatment of amount paid on death of insured—** If any [contract](/usc/26/101.md?p=f-3-A) which is a [life insurance contract](#a) under the applicable law does not meet the definition of [life insurance contract](#a) under [subsection (a)](#a), the excess of the [amount paid](/usc/26/7702A.md?p=e-1-A) by the reason of the death of the [insured](/usc/26/101.md?p=j-5-B) over the net surrender value of the [contract](/usc/26/101.md?p=f-3-A) shall be deemed to be paid under a [life insurance contract](#a) for purposes of [section 101](/usc/26/101.md) and subtitle B.
  - (3) **Contract continues to be treated as insurance contract—** If any [contract](/usc/26/101.md?p=f-3-A) which is a [life insurance contract](#a) under the applicable law does not meet the definition of [life insurance contract](#a) under [subsection (a)](#a), such [contract](/usc/26/101.md?p=f-3-A) shall, notwithstanding such failure, be treated as an insurance [contract](/usc/26/101.md?p=f-3-A) for purposes of this title.
- (h) **Endowment contracts receive same treatment—**
  - (1) **In general—** References in subsections [(a)](#a) and [(g)](#g) to a [life insurance contract](#a) shall be treated as [including](/usc/26/7701.md?p=c) references to a [contract](/usc/26/101.md?p=f-3-A) which is an [endowment contract](#h-2) under the applicable law.
  - (2) **Definition of endowment contract—** For purposes of this title (other than [paragraph (1)](#h-1)), the term “endowment contract” means a [contract](/usc/26/101.md?p=f-3-A) which is an endowment contract under the applicable law and which meets the requirements of [subsection (a)](#a).
- (i) **Transitional rule for certain 20-pay contracts—**
  - (1) **In general—** In the case of a [qualified 20-pay contract](#i-2), this section shall be applied by substituting “3 percent” for “4 percent” in [subsection (b)(2)](#b-2).
  - (2) **Qualified 20-pay contract—** For purposes of [paragraph (1)](#i-1), the term “qualified 20-pay contract” means any [contract](/usc/26/101.md?p=f-3-A) which—
    - (A) requires at least 20 nondecreasing annual premium payments, and
    - (B) is issued pursuant to an [existing plan of insurance](#i-3).
  - (3) **Existing plan of insurance—** For purposes of this subsection, the term “existing plan of insurance” means, with respect to any [contract](/usc/26/101.md?p=f-3-A), any plan of insurance which was filed by the company issuing such [contract](/usc/26/101.md?p=f-3-A) in 1 or more [States](/usc/26/7701.md?p=a-10) before September 28, 1983, and is on file in the appropriate [State](/usc/26/7701.md?p=a-10) for such [contract](/usc/26/101.md?p=f-3-A).
- (j) **Certain church self-funded death benefit plans treated as life insurance—**
  - (1) **In general—** In determining whether any plan or arrangement described in [paragraph (2)](#j-2) is a [life insurance contract](#a), the requirement of [subsection (a)](#a) that the [contract](/usc/26/101.md?p=f-3-A) be a [life insurance contract](#a) under applicable law shall not apply.
  - (2) **Description—** For purposes of this subsection, a plan or arrangement is described in this paragraph if—
    - (A) such plan or arrangement provides for the payment of benefits by reason of the death of the individuals covered under such plan or arrangement, and
    - (B) such plan or arrangement is provided by a [church](#j-3-A) for the benefit of its [employees](/usc/26/7701.md?p=a-20) and their beneficiaries, directly or through an organization described in [section 414(e)(3)(A)](/usc/26/414.md?p=e-3-A) or an organization described in [section 414(e)(3)(B)(ii)](/usc/26/414.md?p=e-3-B-ii).
  - (3) **Definitions—** For purposes of this subsection—
    - (A) **Church—** The term “church” means a church or a convention or association of churches.
    - (B) **Employee—** The term “[employee](/usc/26/7701.md?p=a-20)” [includes](/usc/26/7701.md?p=c) an [employee](/usc/26/7701.md?p=a-20) described in [section 414(e)(3)(B)](/usc/26/414.md?p=e-3-B).
- (k) **Regulations—** The [Secretary](/usc/26/7701.md?p=a-11-B) shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.

## Footnotes

[^1]: So in original. Probably should be “begins”.

## Source credit

(Added Pub. L. 98–369, div. A, title II, § 221(a), July 18, 1984, 98 Stat. 767; amended Pub. L. 99–514, title XVIII, § 1825(a)–(c), Oct. 22, 1986, 100 Stat. 2846–2848; Pub. L. 100–647, title V, § 5011(a), (b), title VI, § 6078(a), Nov. 10, 1988, 102 Stat. 3660, 3661, 3709; Pub. L. 115–97, title I, § 13517(a)(4), Dec. 22, 2017, 131 Stat. 2146; Pub. L. 116–260, div. EE, title II, § 205(a)–(d), Dec. 27, 2020, 134 Stat. 3058.)

## Notes

### Editorial Notes

### Amendments

2020—Subsec. (b)(2)(A). Pub. L. 116–260, § 205(a)(1), substituted “the applicable accumulation test minimum rate” for “an annual effective rate of 4 percent”.

Subsec. (b)(3). Pub. L. 116–260, § 205(a)(2), added par. (3).

Subsec. (c)(3)(B)(iii). Pub. L. 116–260, § 205(b)(1), substituted “the applicable guideline premium minimum rate” for “an annual effective rate of 6 percent”.

Subsec. (c)(3)(E). Pub. L. 116–260, § 205(b)(2), added subpar. (E).

Subsec. (c)(4). Pub. L. 116–260, § 205(c), substituted “the applicable accumulation test minimum rate” for “4 percent” and “the applicable guideline premium minimum rate” for “6 percent”.

Subsec. (f)(11). Pub. L. 116–260, § 205(d), added par. (11).

2017—Subsec. (c)(3)(B)(i). Pub. L. 115–97, § 13517(a)(4)(A), added cl. (i) and struck out former cl. (i) which read as follows: “reasonable mortality charges which meet the requirements (if any) prescribed in regulations and which (except as provided in regulations) do not exceed the mortality charges specified in the prevailing commissioners’ standard tables (as defined in section 807(d)(5)) as of the time the contract is issued,”.

Subsec. (f)(10). Pub. L. 115–97, § 13517(a)(4)(B), added par. (10).

1988—Subsec. (c)(3)(B)(i), (ii). Pub. L. 100–647, § 5011(a), added cls. (i) and (ii) and struck out former cls. (i) and (ii) which read as follows:

“(i) the mortality charges specified in the contract (or, if none is specified, the mortality charges used in determining the statutory reserves for such contract),

“(ii) any charges (not taken into account under clause (i)) specified in the contract (the amount of any charge not so specified shall be treated as zero), and”.

Subsec. (c)(3)(D). Pub. L. 100–647, § 5011(b), added subpar. (D).

Subsecs. (j), (k). Pub. L. 100–647, § 6078(a), added subsec. (j) and redesignated former subsec. (j) as (k).

1986—Subsec. (b)(2)(C). Pub. L. 99–514, § 1825(a)(2), substituted “subparagraphs (A) and (D)” for “subparagraphs (A) and (C)”.

Subsec. (e)(1). Pub. L. 99–514, § 1825(a)(3), inserted “(other than subsection (d))” after “section”.

Subsec. (e)(1)(B). Pub. L. 99–514, § 1825(a)(1)(A), substituted “shall be deemed to be no earlier than” for “shall be no earlier than”.

Subsec. (e)(1)(C). Pub. L. 99–514, § 1821(a)(1)(C), added subpar. (C). Former subpar. (C) redesignated (D).

Subsec. (e)(1)(D). Pub. L. 99–514, § 1821(a)(1)(C), (D), redesignated subpar. (C) as (D) and substituted “the maturity date determined by taking into account subparagraph (B)” for “the maturity date described in subparagraph (B)”.

Subsec. (e)(2)(C). Pub. L. 99–514, § 1825(a)(4), added subpar. (C).

Subsec. (f)(1)(A). Pub. L. 99–514, § 1825(b)(2), substituted “less any excess premiums with respect to which there is a distribution described in subparagraph (B) or (E) of paragraph (7) and any other amounts received” for “less any other amounts received”.

Subsec. (f)(7). Pub. L. 99–514, § 1825(b)(1), amended par. (7) generally. Prior to amendment, par. (7)(A), in general, read as follows: “In the event of a change in the future benefits or any qualified additional benefit (or in any other terms) under the contract which was not reflected in any previous determination made under this section, under regulations prescribed by the Secretary, there shall be proper adjustments in future determinations made under this section.”, and par. (7)(B), certain changes treated as exchange, read as follows: “In the case of any change which reduces the future benefits under the contract, such change shall be treated as an exchange of the contract for another contract.”

Subsec. (g)(1)(B)(ii). Pub. L. 99–514, § 1825(c), amended cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: “the amount of premiums paid under the contract during the taxable year reduced by any policyholder dividends received during such taxable year.”

### Statutory Notes and Related Subsidiaries

### Effective Date of 2020 Amendment

Pub. L. 116–260, div. EE, title II, § 205(e), Dec. 27, 2020, 134 Stat. 3059, provided that: “The amendments made by this section [amending this section] shall apply to contracts issued after December 31, 2020.”

### Effective Date of 2017 Amendment

Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with transition rule and transition relief, see section 13517(c) of Pub. L. 115–97, set out as a note under section 807 of this title.

### Effective Date of 1988 Amendment

Pub. L. 100–647, title V, § 5011(d), Nov. 10, 1988, 102 Stat. 3661, provided that: “The amendments made by this section [amending this section] shall apply to contracts entered into on or after October 21, 1988.”

Pub. L. 100–647, title VI, § 6078(b), Nov. 10, 1988, 102 Stat. 3709, provided that: “The amendment made by subsection (a) [amending this section] shall take effect as if included in the amendment made by section 221(a) of the Tax Reform Act of 1984 [Pub. L. 98–369, which enacted this section].”

### Effective Date of 1986 Amendment

Pub. L. 99–514, title XVIII, § 1825(a)(4), Oct. 22, 1986, 100 Stat. 2846, as amended by Pub. L. 100–647, title I, § 1018(j), Nov. 10, 1988, 102 Stat. 3583, provided that the amendment made by that section is effective with respect to contracts entered into after Oct. 22, 1986.

Amendment by section 1825(a)(1)–(3), (b), (c) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

### Effective Date

Pub. L. 98–369, div. A, title II, § 221(d), July 18, 1984, 98 Stat. 772, as amended by Pub. L. 99–514, § 2, title XVIII, §§ 1825(e), 1899A(69), Oct. 22, 1986, 100 Stat. 2095, 2848, 2962, provided that: In general.—Except as otherwise provided in this subsection, the amendments made by this section [enacting this section and amending section 101 of this title and provisions set out as a note under section 101 of this title] shall apply to contracts issued after December 31, 1984, in taxable years ending after such date.Special rule for certain contracts issued after june 30, 1984.— General rule.—Except as otherwise provided in this paragraph, the amendments made by this section shall apply also to any contract issued after June 30, 1984, which provides an increasing death benefit and has premium funding more rapid than 10-year level premium payments. Exception for certain contracts.—Subparagraph (A) shall not apply to any contract if— such contract (whether or not a flexible premium contract) would meet the requirements of section 101(f) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], such contract is not a flexible premium life insurance contract (within the meaning of section 101(f) of such Code) and would meet the requirements of section 7702 of such Code determined by— substituting ‘3 percent’ for ‘4 percent’ in section 7702(b)(2) of such Code, and treating subparagraph (B) of section 7702(e)(1) of such Code as if it read as follows: ‘the maturity date shall be the latest maturity date permitted under the contract, but not less than 20 years after the date of issue or (if earlier) age 95’, or under such contract— the premiums (including any policy fees) will be adjusted from time-to-time to reflect the level amount necessary (but not less than zero) at the time of such adjustment to provide a level death benefit assuming interest crediting and an annual effective interest rate of not less than 3 percent, or at the option of the insured, in lieu of an adjustment under subclause (I) there will be a comparable adjustment in the amount of the death benefit.Certain contracts issued before october 1, 1984.— In general.—Subparagraph (A) shall be applied by substituting ‘September 30, 1984’ for ‘June 30, 1984’ in the case of a contract— which would meet the requirements of section 7702 of such Code if ‘3 percent’ were substituted for ‘4 percent’ in section 7702(b)(2) of such Code, and the rate or rates guaranteed on issuance of the contract were determined without regard to any mortality charges and any initial excess interest guarantees, and the cash surrender value of which does not at any time exceed the net single premium which would have to be paid at such time to fund future benefits under the contract. Definitions.—For purposes of clause (i)— In general.—Except as provided in subclause (II), terms used in clause (i) shall have the same meanings as when used in section 7702 of such Code. Net single premium.—The term ‘net single premium’ shall be determined by substituting ‘3 percent’ for ‘4 percent’ in section 7702(b)(2) of such Code, by using the 1958 standard ordinary mortality and morbidity tables of the National Association of Insurance Commissioners, and by assuming a level death benefit. Transitional rule for certain existing plans of insurance.—A plan of insurance on file in 1 or more States before September 28, 1983, shall be treated for purposes of section 7702(i)(3) of such Code as a plan of insurance on file in 1 or more States before September 28, 1983, without regard to whether such plan of insurance is modified after September 28, 1983, to permit the crediting of excess interest or similar amounts annually and not monthly under contracts issued pursuant to such plan of insurance. Extension of flexible premium contract provisions.—The amendments made by subsection (b) [amending section 101 of this title and provisions set out as a note under section 101 of this title] shall take effect on January 1, 1984. Special rule for master contract.—For purposes of this subsection, in the case of a master contract, the date taken into account with respect to any insured shall be the first date on which such insured is covered under such contract.”

### Interim Rules; Regulations; Standards Before Regulations Take Effect

Pub. L. 100–647, title V, § 5011(c), Nov. 10, 1988, 102 Stat. 3661, provided that the Secretary of the Treasury would issue regulations under subsec. (c)(3)(B)(i) of this section and provided for a standard for contracts issues before the effective date of those regulations.

### Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.

### Treatment of Flexible Premium Contracts Issued During 1984 Which Meet New Requirements

Pub. L. 98–369, div. A, title II, § 221(b)(3), as added by Pub. L. 99–514, title XVIII, § 1825(d), Oct. 22, 1986, 100 Stat. 2848, provided that: “Any flexible premium contract issued during 1984 which meets the requirements of section 7702 of the Internal Revenue Code of 1954 [now 1986] (as added by this section) shall be treated as meeting the requirements of section 101(f) of such Code.”