IRC 101(a)(2), the transfer-for-value rule, limits the 101(a) exclusion when a life insurance policy or interest therein is transferred for valuable consideration. In such cases, only the transferor's basis (consideration paid plus subsequent premiums) is excludable; the excess is taxable, unless an exception applies. Exceptions include transfers to the insured, to a partner of the insured, to a partnership or corporation in which the insured is a partner or officer, and certain carryovers in tax-free transfers.

When policies are sold, advisors analyze transfer-for-value risks and rely on exceptions-transfers to the insured, partners, partnerships, or corporations with the insured as officer/stockholder-to preserve tax-free treatment.