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Insurance Quotes 2 Day Team

Written By Doug Mitchell

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University, a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA and Top of the Table member of the Million Dollar Round Table (MDRT). Doug has spent close to 30 years in the insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health.  Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

Holly Mitchell  &

Holly Mitchell’s background in life insurance insurance goes back to 1985 when she worked for her father who was a New York Life agent. Holly has a marketing degree from Auburn University and has had a life insurance license since 2008. In addition to advising life insurance for customers all around the country, Holly is our website fact checker.

Rob Pinner   &

Rob Pinner is the founder and CEO of Pinner Financial Services servicing all 50 states. Rob started his insurance career in 2002.

Louis LaBash

Results-driven and innovative life insurance professional with 30 plus years of life insurance industry sales and marketing experience. Recognized as a pioneer in the field, leveraging phone and internet channels to exceed personal sales of over $100 million during the first decade of the 21st century. Creator of a highly effective intuitive IUL life insurance sales software that facilitated the sale of millions of dollars of indexed universal policies by numerous life insurance agents. Proven track record as a Managing General Agent (MGA), Life Agent, IUL Life Insurance Sales Software developer, and leading-edge creator of insurance marketing tools, educational content, and delivery systems.

 3 minute read

Simply put, CVAT is the acronym for Cash Value Accumulation Test, and GPT is the acronym for Guideline Premium Test.

Both of these acronyms have to do with how the Internal Revenue Service determines the tax favorability of a life insurance policy.

An insurance policy that fails to meet any requirements under IRC Section 7702 is no longer considered an insurance product and will not be eligible for the tax benefits granted to insurance products.

What are the Basic Differences?

The primary difference between CVAT and GPT is that the CVAT limits the amount of the cash value account proportionate to the death benefit in the policy, while the GPT limits the amount of premiums paid proportionate to the death benefit.

As the insured ages, the percentage of the death benefit that goes to the corridor decreases, and can be zero by age 95.

Although the Cash Value Accumulation Test does not place a limit on premium payments and generally allows the policyholder to overpay in the first seven years of the policy when compared to the funding limits under the Guideline Premium Test.

However, CVAT policies generally require a higher corridor factor in terms of both cash value and death benefit. This can impact the policy’s long-term cash accumulation, as CVAT typically has higher costs of insurance than GPT products.

There are two requirements that must be met for a policy to pass what is known as the Guideline Premium Test:

  • Requirement one stipulates that there can only be a limited amount of cumulative premium paid into the said policy.
  • Requirement two is based on how much cash value is relative to both the death benefit and the insured’s attained age.

On the other hand, in order to pass the Cash Value Accumulation Test – CVAT, your account value must not exceed a specified percentage of your death benefit. However, note that paying excessive premiums could still result in a Modified Endowment Contract.

The most important guidelines to follow are:

  • Insurance policies that adhere to the Cash Value Accumulation Test generally perform better for policyholders who prefer to access their cash values in the policy’s early years or prefer to pay a lump sum or limited sum premium payments.
  • Insurance policies that adhere to the Guideline Premium Test will typically perform better for those policyholders who prefer to accumulate cash value over a longer time period.

Why Choose CVAT?

Deciding which test will be a better solution for you is generally determined by your need and purpose for your life insurance:

When a policyholder does not want to be limited in how much they can pay into their policy and wants to maximize their death benefit, CVAT may be right for them. This method allows for flexible premium payments and can provide a larger death benefit than other options.

Why Choose GPT?

Using the Guideline Premium test is generally most beneficial for applicants who are purchase life insurance for tax-free retirement income:

  • You want to pay maximum premiums and accumulate significant cash over time.
  • You are accumulating the wealth required to take policy distributions (policy loans) during retirement at the expense of your policy’s death benefit.
  • You decide to take death benefit option 2 so you can invest the maximum premium (non-MEC) for more than seven years and then switch to death benefit option 1.
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Doug Mitchell, CLU Independant Advisor
Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA. Doug has spent almost 30 years in the life insurance industry and has also held licenses to sell securities, long-term care insurance and home and auto insurance. Doug is a Top of the Table Million Dollar Round Table member (MDRT).  MDRT is a global, independent association of the world's leading life insurance advisors.  For two years, Doug served as President of the Auburn Opelika Association of Financial Advisors and has been a member of the Million Dollar Round Table. He obtained Life Millionaire status at Horace Mann Insurance Company and was awarded the Life Agent of the Year Award. Later in his career with New York Life he was an Executive Council Member. Doug currently serves as President of Ogletree Financial, a managing general agency serving life insurance agents and clients in all parts of the United States. Today, Doug’s main focus is servicing 1000s of policyholders and growing the agency through the reach of