PPLI rules & compliance.

§7702 — Definition of a life insurance contract

Every PPLI policy must satisfy either the Guideline Premium/Corridor Test (GPT) or the Cash Value Accumulation Test (CVAT) and maintain a minimum corridor of death benefit above cash value. Failing §7702 collapses the entire tax treatment.

§7702A — MEC status

The seven-pay test determines whether the policy is a Modified Endowment Contract. MEC status doesn't affect the death benefit but changes how lifetime distributions are taxed. It's a design choice, not an accident.

§817(h) — Diversification

The separate account backing the policy must satisfy the 55/70/80/90 safe-harbor: no single investment more than 55%, no two more than 70%, no three more than 80%, no four more than 90%. Tested quarterly; Insurance Dedicated Funds are engineered around this rule.

Investor control doctrine

Under Rev. Rul. 2003-91, Rev. Rul. 2003-92, and Rev. Proc. 99-44, if the policy owner exercises meaningful control over separate-account investments, the owner is treated as the tax owner of the underlying assets. Investment discretion sits with the insurer or manager.

Investor qualification

PPLI is a Regulation D private securities offering. Owners must generally be Accredited Investors under Rule 501; §3(c)(7) IDFs additionally require every underlying owner to be a Qualified Purchaser under §2(a)(51) of the 1940 Act.

Jurisdiction & reporting

Onshore U.S. carriers offer familiar reporting. Bermuda and Cayman carriers can lower premium tax and offer §953(d) elections; non-electing structures carry §4371 excise tax and FATCA / CRS reporting implications.