Unlocking Potential: Leveraging 77rr Women in Financial Services

We want to unlock the potential because a lot of financial advisors are unaware of the tremendous effects the 7702 changes had on cash value life insurance products issued on or after January 1, 2021. Statistics show that tax planning is a high priority for your clients, yet few advisors are having these conversations. Until now.

7702 Changes

The Consolidated Appropriations Act (CAA), which was passed at the end of 2020, contained changes to interest rate assumptions required within IRC Section 7702 Definition of Life Insurance. This was an extremely important development for both consumers and life insurance carriers. The interest rates outlined within Section 7702 were originally established in 1984, when interest rates were high, making it difficult for companies to meet 7702 requirements while still providing competitive cash value accumulation when interest rates started to decline.

The interest rate assumptions used to calculate changes to 7702 were reduced to a more realistic level to reflect the current low interest rate environment in 2020. Lowering interest rates meant increasing both the maximum cash values and maximum premiums allowed per dollar of death benefit for a policy to qualify for tax-advantaged status.  Modified Endowment Contract (MEC) premium limits increased, meaning the amount of premium used to fund a given death benefit increased. This change benefited cash value life insurance products such as universal life (UL) policies by allowing a higher premium amount to be paid in the policy before hitting the MEC premium limit.

Our Allies at NAIFA helped spearhead these changes. These changes provide Americans additional relief to save for retirement, protect their families and businesses during the pandemic when purchasing life insurance. Effective with cash value life insurance policies issued on or after January 1, 2021, there had never been a better time to maximum fund cash value life insurance. However, the window for the current 7702 parameters is closing and time is of the essence.

To ensure 7702 interest rates would no longer be locked into a rate that was not compatible with the current interest rate environment, the 7702 calculations will be revisited in 2025 and will become effective with contracts issued on or after January 1, 2026. Since the current interest rate environment is higher than it was in 2020, the MEC premium limits for post January 1, 2026, contracts are not expected to be as attractive as they are today. Contracts issued before January 1, 2026, would be grandfathered, thus advisors have less than two years to help their clients take maximum advantage of what this incredible financial product has to offer.

According to Kate Beck, “I personally reviewed how much was in my IRA and was surprised to learn that I have not saved nearly as much as I need. Therefore, I took the initiative to call my life insurance carrier and ask what the premium contribution limit is to maximum fund my cash value life insurance policy. I did this because I am limited on contributions for other retirement accounts. I am proof of taking advantage of the 7702 changes.”

Take Action Now!

Have conversations with your clients about purchasing a fully funded cash value life insurance policy to start taking advantage of the 7702 changes before January 1, 2026. This will allow them the opportunity to maximum fund their policies at levels that may never be this generous again. If budgeting is an issue, then minimum fund a UL policy or suggest purchasing a term life insurance policy with the goal to convert to a cash value life insurance policy with an issue date before January 1, 2026. Please seek professional advice from your carrier and/or insurance advisor.

How did we all connect? Kansas City Life was a sponsor at the WIFS national conference in San Diego and the NAIFA California state conference. WIFS and NAIFA CA had a joint event where we all met.

WIFS and NAIFA, as advocates for women in insurance and financial services and the life insurance industry respectively, collaborate to promote professional development, diversity, and industry innovation. Through joint events, training sessions, and networking opportunities, they foster a supportive ecosystem that empowers women professionals to excel in the insurance and financial services sector. By bridging expertise and resources, WIFS and NAIFA drive industry growth and ensure that women have access to the tools and opportunities needed to thrive in the dynamic landscape of life insurance. NAIFA has been a tremendous advocate for positive changes to 7702 and we encourage you to seek and join a local chapter. Shout out to Melissa Stitz, Wisconsin President WIFS and Chris Bor NAIFA Past President of Washington who are both Regional Vice Presidents of Kansas City Life Insurance company and collaborated on this blog.

Kate Beck

PDX Insurance & Associates, Inc Principal

WIFS Oregon President Elect

Originally posted on WIFS website on March 11, 2024