26 U.S. Code § 7702A - Modified endowment contract defined
For purposes of subsection (a), a contract fails to meet the 7-pay test of this subsection if the accumulated amount paid under the contract at any time during the 1st 7 contract years exceeds the sum of the net level premiums which would have been paid on or before such time if the contract provided for paid-up future benefits after the payment of 7 level annual premiums.
If there is a reduction in benefits under the contract within the 1st 7 contract years, this section shall be applied as if the contract had originally been issued at the reduced benefit level.
The Secretary may by regulations prescribe rules for taking into account expenses solely attributable to the collection of premiums paid more frequently than annually.
If, in order to comply with the requirements of subsection (b), any portion of any premium paid during any contract year is returned by the insurance company (with interest) within 60 days after the end of such contract year, the amount so returned (excluding interest) shall be deemed to reduce the sum of the premiums paid under the contract during such contract year.
The term “contract year” means the 12-month period beginning with the 1st month for which the contract is in effect, and each 12-month period beginning with the corresponding month in subsequent calendar years.
2000—Subsec. (a)(2). Pub. L. 106–554, § 1(a)(7) [title III, § 318(a)(1)], inserted “or this paragraph” before period at end.
Subsec. (c)(3)(A)(ii). Pub. L. 106–554, § 1(a)(7) [title III, § 318(a)(2)], which substituted “under the old contract” for “under the contract”, was repealed by Pub. L. 107–147. See Construction of 2002 Amendment note below.
1989—Subsec. (c)(3)(B). Pub. L. 101–239, § 7815(a)(1), substituted “benefit increases” for “increases in future benefits” in heading and amended text generally. Prior to amendment, text read as follows: “For purposes of subparagraph (A), the term ‘material change’ includes any increase in future benefits under the contract. Such term shall not include—
“(i) any increase which is attributable to the payment of premiums necessary to fund the lowest level of future benefits payable in the 1st 7 contract years (determined after taking into account death benefit increases described in subparagraph (A) or (B) of section 7702(e)(2)) or to crediting of interest or other earnings (including policyholder dividends) in respect of such premiums, and
“(ii) to the extent provided in regulations, any cost-of-living increase based on an established broad-based index if such increase is funded ratably over the remaining life of the the contract.”
Subsec. (c)(4). Pub. L. 101–239, § 7815(a)(4), substituted “of $10,000 or less” for “under $10,000” in heading and “the same policyholder” for “the same insurer” in concluding provisions.
Subsec. (c)(6). Pub. L. 101–239, § 7647(a), added par. (6).
Amendment by section 7815(a)(1), (4) of Pub. L. 101–239 effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, to which such amendment relates, see section 7817 of Pub. L. 101–239, set out as a note under section 1 of this title.