Seven-Pay Test

Here is another universal life insurance term: Seven-Pay Test. The seven-pay test actually has nothing to do with your paying seven premiums. This is to ensure your insurance policy complying with the TEFRA and DEFRA limits. It basically limits the amount that you can pay into your policy within the first seven years.

I have no clue how the limits are calculated. But the insurance company is supposed to let you know those numbers. And in both of the illustrations (from Aviva and Old mutual life) I have seen, they all let you put premiums for 5 years and in the explanation it gives a different figure saying something like 7Pay. This is the sever-pay test limit. And th premium you will pay has to be less than that 7pay amount.

Besides seven-pay test, there is actually another test called IRC 7702 life insurance test. IRC stands for Internal Revenue Code. You know where this is from. As far as I understand, IRC 7702 is actually more restrictive than 7pay test.

Your 5 year premium is most likely to comply with 7702 test first, meaning the policy is illustrated to allow you to maximize the premiums under the more restrictive 7702 compliance.
if it is compliant with 7702, it will be with 7pay test.

Again, I don't have much clue how the 7702 limits are calculated. I guess the variables are you face amount, your death benefit option and probably the riders you choose.

Do you understand how the limits for 7pay test and 7702 test are calculated?