Section 7702 is the Internal Revenue Code provision that defines what qualifies as a life insurance contract for federal income tax purposes. It sets tests that distinguish life insurance from investment products, primarily the cash value accumulation test (CVAT) and the guideline premium and corridor test (GPT). These tests limit how much premium can be paid relative to death benefit and how quickly cash values can build inside a policy while still receiving favorable tax treatment. If a contract fails Section 7702, inside buildup may be taxed annually, undermining the traditional tax-deferred advantage of life insurance. Section 7702 is fundamental to product design, pricing, and compliance for all permanent life insurance policies issued in the United States.

Product actuaries and tax specialists apply section 7702 when designing whole life, universal life, indexed universal life, and variable life products. They ensure that premium limits and corridor factors are programmed into administration systems so policies cannot be funded beyond compliant levels. Advisors encounter section 7702 concepts when discussing maximum-funded policies, premium limits, and death benefit increases required to maintain tax status. In advanced planning, they coordinate high cash value funding strategies with carrier guidelines to avoid inadvertent 7702 violations. Understanding section 7702 helps advisors explain why they cannot simply add unlimited premium into a policy without changing death benefits or risking negative tax consequences.