Jessica Fox Last Updated On: June 27, 2023

Home / Blog / Life Insurance / Section 7702 Life Insurance Plans Explained

What is a 7702 Plan?

Don’t let the seemingly random sequence of numbers confuse you. When you hear someone use the phrase, “section 7702 plans,” they are simply referring to a specific type of life insurance policy.

In particular, they are referring to life insurance plans that have a cash value component to them. Section 7702 is the part of the policy that details the conditions of your cash value account and refers to the IRS Section 7702 that spells out how cash value accounts are tax deferred.

So, how does a cash value account work and do you need one? We’ll explore that and more, next.

Free Life Insurance Comparison - Save up to 30%

No junk mail. No spam calls. Free quotes.

No Signup required

What is a Cash Value Account?

A cash value account acts as a tax-deferred savings account. This means that the savings will not be taxed until they are withdrawn from the account.

When you pay premiums to your 7702 insurance, a portion of that money goes towards your death benefit that is to be paid upon your passing, but another portion goes towards your cash value account.

Unlike the death benefit, this cash value account can be accessed during your lifetime for major life purchases like buying a home or paying for college tuition.

You can also look at a cash value account as a forced savings vehicle; if you find it difficult to build up a savings account, this might be a good option for you because it automates the savings component.

Free Life Insurance Comparison - Save up to 30%

No junk mail. No spam calls. Free quotes.

No Signup required

What You Should Know About CVAT Life Insurance

The IRS lays out rules on how cash value accounts can receive tax benefits in section 7702. Part of that section involves the Cash Value Accumulation Test (CVAT), which is a test to ensure if you cancel your policy, you won’t receive more money than what you would have paid for the policy in one lump sum.

This is because in the past, cash value components of life insurance policies were being misused to shelter large amounts of money from tax. The CVAT helps to prevent this and ensure policies are compliant in order to receive their tax advantages.

7702 Life Insurance Plan Options

There are multiple life insurance plans with their own unique conditions that contain a cash value component, which means you can find the right insurance plan for your needs. Here are the different 7702 plan options and how their cash value components work:
  • Whole Life Insurance:
    • Insurance provider sets a fixed interest rate for your cash value
    • If your policy is from a mutual insurance company, you may be paid dividends
  • Universal Life Insurance:
    • Cash value earns interest at variable rate predetermined by provider
    • Variable Life Insurance:
      • Cash value amount is invested into sub-accounts offered by insurer
      • Cash value fluctuates based on how those accounts are doing
      • Premiums remain the same throughout the policy
      • Variable Universal Life Insurance:
        • Similar to variable life insurance, but the premiums will also fluctuate
        • The amount they are permitted to change is predetermined by provider
        • Indexed Universal Life Insurance:
          • Insurer selects stock market index in which to invest your premiums
          • Contains a predetermined floor and ceiling for your cash value account
          • Guaranteed Universal Life Insurance:
            • For those who struggle to qualify for other plans (due to health or age restrictions)
            • Optional cash value component
            • Minimal cash value accumulation compared to other plans
          You have options when it comes to your 7702 life insurance plans. Your budget and life insurance needs will help you determine which 7702 plan is right for you.

Free Life Insurance Comparison - Save up to 30%

No junk mail. No spam calls. Free quotes.

No Signup required

How Much Do Cash Value Insurance Plans Cost?

There’s no easy answer to this question, because it depends heavily on the type of life insurance plan you choose as well as a number of other personal factors.

The cost of your policy will depend on:

  • Policy Type
  • Health
  • Age
  • Gender
  • Hobbies

However, since your premiums are going towards this cash value component in addition to the death benefit, you can expect your premiums to be higher than life insurance policies without a cash value component.

Is a Section 7702 Policy Right for Me?

Life insurance is a personal decision. Not all plans are a good fit for everyone, which is why there are so many different options.

In general, section 7702 plans are a good idea for those who:

  • Earn a high income
  • Already maxed out retirement accounts
  • Have a large net worth and wish to build a tax-deferred inheritance for their children or other beneficiaries
  • Have a lifelong dependant who will need extra savings in the event of their death
  • Want to automate their savings
  • Want to access their life insurance during their lifetime

By getting quotes and comparing options, you can start to determine if 7702 life insurance is right for you and which plan fits into your budget.

Free Life Insurance Comparison - Save up to 30%

No junk mail. No spam calls. Free quotes.

No Signup required

7702 Insurance Plans Versus Retirement Plans

It’s important to note that a life insurance policy with a cash value component is not the same as a retirement plan, and it shouldn’t replace one. A retirement plan helps ensure you have the financial resources you need to retire when you’re older and live comfortably.

But a life insurance policy with a cash value account is mostly designed to protect your loved ones when you pass away. Although you can take a loan out against your cash value account (which benefits you during your lifetime), your insurance policy shouldn’t be treated as a retirement plan or replace one.

How to Get IRS Section 7702 Insurance Plans

Getting life insurance can seem complicated, but it’s easier than you might think. Your first step is to decide which type of 7702 insurance plan you want, and then start getting quotes. You can do this online with ConsumerCoverage.

7702 Life Insurance Plans: Key Takeaways

Life insurance is a great way to protect your loved ones should anything happen to you, but 7702 plans give you and your family even more protection. They help build a financial safety net in the event of your death and ensure your family has the financial stability it needs to mourn your passing.

There are many options for 7702 plans, which means you can choose exactly the insurance coverage and cash value setup that works for you and your budget. The number of options and complexities of each plan can be overwhelming, but you’re not alone.

ConsumerCoverage is here to help. You get fast, free quotes on life insurance plans with cash value accounts, as well as dedicated help to understand your options.

Jessica Fox Jessica Fox has been a freelance writer for five years, with a specialty in health, wellness, and insurance. During this time, she’s written for some of the biggest B2B and B2C brands from around the world. Jessica is also the mother of two young daughters and loves coffee, writing, and working out.

Stay Up-to-Date
Subscribe to our newsletter and receive alerts, offers, education, and updates in your inbox.