Definition

Diversification Requirement

The §817(h) test that limits concentration in a variable insurance separate account.

Full definition

The diversification requirement of Treasury Regulation §1.817-5 imposes the 55/70/80/90 concentration limits on the investments backing a variable life insurance or annuity contract. It is tested at the separate account level; IDFs are designed to satisfy it. Failing the test for any calendar quarter (subject to correction procedures) can disqualify the policy.

Related terms

IRC §817(h)

The diversification requirement for variable insurance separate accounts.

Insurance Dedicated Fund (IDF)

A pooled fund created specifically to sit inside variable insurance contracts and satisfy §817(h) diversification.

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