Section 7702 is a section of the United States Internal Revenue Code that defines the tax treatment of life insurance contracts. Specifically, it sets forth the requirements that a life insurance policy must meet in order to qualify for tax-favored treatment.

The section 7702 rules were put in place to prevent individuals from using life insurance policies primarily as a tax shelter rather than as a means of providing financial protection to beneficiaries. To qualify for tax-favored treatment, a life insurance policy must meet certain tests related to the policy’s premiums, death benefit, and cash value accumulation.

The two tests that a life insurance policy must meet under section 7702 are the “cash value accumulation test” (CVAT) and the “guideline premium and corridor test” (GPT). The CVAT limits the amount of premiums that can be paid into a policy relative to the policy’s death benefit, while the GPT limits the amount of premiums that can be paid into a policy relative to the policy’s cash value.

If a policy fails to meet the requirements of section 7702, it may lose its tax-favored status and be subject to unfavorable tax treatment. Therefore, it is important for individuals considering a life insurance policy to consult with a qualified insurance and/or tax professional to ensure that their policy meets the section 7702 requirements.