Cash value test is one of the statutory rules under Section 7702 used to determine whether a contract qualifies as life insurance for federal tax purposes. The test compares the policyTMs cash value to the present value of future death benefits using prescribed interest and mortality factors. If cash values grow too quickly relative to death benefits, the contract can fail the test and lose life-insurance tax treatment. Carriers usually design policies to meet either the cash value accumulation test or the guideline premium and corridor test, monitoring compliance over time through actuarial systems. End users rarely see the mechanics, but results shape product design and allowable funding patterns.

Product actuaries apply the cash value test when creating new life insurance products and during ongoing compliance testing. Advisors encounter the concept indirectly when comparing CVAT-based versus GPT-based policies for high cash-value funding strategies. They may learn that CVAT designs can permit higher early premiums in some scenarios but require specific death-benefit adjustments to remain compliant. Advanced planners consult carrier resources or tax counsel when structuring maximum-funded policies near statutory limits. Understanding the cash value test helps advisors appreciate why funding and death-benefit patterns are constrained by tax law even when clients want to contribute more aggressively.