Tax TreatmentQuestion 222 of 716
What test determines whether a permanent life insurance policy is classified as a Modified Endowment Contract (MEC)?
a.The seven-pay test
b.The cash value accumulation test
c.The corridor test
d.The guideline premium test
Explanation
Under IRC §7702A, a contract becomes a MEC if cumulative premiums paid in any of the first seven contract years exceed the seven-pay premium limit. The corridor and CVAT/GPT tests instead determine whether a contract qualifies as life insurance under §7702.
Law Reference: IRC §7702AThis topic, taught in full in the California Life & Health Insurance Producer Exam guide. California Life & Health Insurance Producer Exam — Complete Study Guide (2026) — PDF + EPUB, $19.99 · 14-day refund →
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Related questions on this topic
- How is a lump-sum life insurance death benefit paid to a named individual beneficiary treated for federal income tax purposes?
- How is a partial withdrawal from a non-MEC permanent life insurance policy taxed?
- An owner age 50 takes a $10,000 distribution from a Modified Endowment Contract that has $4,000 of gain over basis. What federal tax result generally applies?
- Which of the following transactions is NOT permitted as a tax-free exchange under IRC §1035?
- How is a non-annuitized withdrawal from a non-qualified deferred annuity issued after August 13, 1982 taxed?
- Under IRC §79, how much employer-paid group term life insurance coverage may an employee receive each year without imputed income?
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PrepPass team · Verified against California Life & Health Insurance License Exam · How we review
Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)