Adjusting the Death Benefit in IUL: Managing the Guideline Premium Test

Indexed Universal Life (IUL) policies are highly flexible, but adjusting the death benefit requires adherence to complex IRS rules designed to maintain the policy’s status as life insurance, particularly the **Guideline Premium Test (GPT)**.

The Guideline Premium Test (GPT)

The GPT is one of two tests used by the IRS to determine if a policy qualifies as life insurance (and thus retains its tax advantages). It focuses on ensuring that the cumulative premiums paid do not exceed the amount needed to fund the policy to maturity based on conservative assumptions.

Impact of Death Benefit Changes

• **Decreasing the Death Benefit:** If the death benefit is decreased, the IRS may force a ‘correction’ if the new cash value exceeds the new death benefit (the “corridor”), potentially resulting in immediate taxation on a portion of the gain.
• **Increasing the Death Benefit:** An increase requires the insured to prove insurability and adjusts the maximum Guideline Premium limit, allowing for larger future contributions without triggering MEC status.

Disclaimer: This content is for informational purposes only and is not financial or legal advice. Any adjustment to a UL or IUL policy must be reviewed by the issuing company’s advanced sales team to ensure ongoing tax compliance.