Types of Policies
Under IRC § 7702 corridor rules, what must an insurer do if cash value growth in a universal life policy threatens to breach the statutory life insurance definition ratio?
Answer and explanation
Answer: B. IRC § 7702 requires a minimum corridor (percentage gap) between cash value and death benefit for a contract to qualify as life insurance. If cash value approaches face amount, death benefit must automatically increase.Source: Internal Revenue Code § 7702 / NAIC Guidance — PDF page 5, IRC 7702 Corridor
More types of policies questions
- How do premiums behave over time in a typical decreasing term life policy?
- How does a life annuity with 10-year period certain settlement option protect beneficiaries?
- How does the death benefit of an increasing term rider or policy change over time?
- How does the premium for a joint life (first-to-die) policy compare to buying two separate individual policies of the same face amount?
- How is interest credited to cash values in an interest-sensitive whole life policy?
- How is single-premium whole life ordinarily funded?
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