If you have online access to LifeBenefits you will be able to find information specific to your contract in the Online Resources section.

Select the question below for more information.

» Are there limits on how much premium I can contribute to my policy?
» Why are these premium limits important?
» What type of premium limit is used to determine if my policy qualifies as life insurance?

Are there limits on how much premium I can contribute to my policy?
Yes. There are two limits that restrict the amount of premium you can pay. Both limits relate to life insurance provisions in the Internal Revenue Code (IRC). One limit ensures that your certificate qualifies as life insurance. A second limit determines whether your policy is a Modified Endowment Contract (MEC).

For the majority of people, the premiums paid will not approach these limits. If you contribute substantial premium amounts to accumulate an account value, the limits may apply. Minnesota Life regularly tests your policy to identify when you reach a limit.

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Why are these premium limits important?
Under current tax law, a policy that satisfies the definition of life insurance qualifies for tax-deferred growth of the account value as well as tax-free payment of the death benefit. If a policy does not qualify, you lose these tax advantages.

Furthermore, when a policy is not a MEC, withdrawals can generally be made tax-free up to the basis in the policy and loans can be made without paying tax, even if the amount of the loans exceeds the amount of total premiums paid. If a policy is deemed to be a MEC, however, loans and withdrawals are taxed as income (up to the gain in the policy), and there is a 10 percent penalty on the taxable portion of all loans and withdrawals made prior to age 59 1/2.

Your account value accumulates tax-free and death benefits are paid out tax-free to your beneficiary under current tax law under both MEC and non-MEC policies.

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What type of premium limit is used to determine if my policy qualifies as life insurance?
Section 7702 of the Internal Revenue Code describes the tests a contract must meet in order to qualify as life insurance (the Deficit Reduction Act of 1984 adopted this definition so these tests are often referred to as "DEFRA tests"). Under current tax law, a policy that satisfies the definition of life insurance provides for tax-deferred growth of the cash value as well as tax-free payment of the death benefit. To satisfy this definition, a policy must meet one of two tests:

• The Guideline Premium Test, or
• The Cash Value Accumulation Test.

Your group policyholder selects one of these tests for your group policy.

This is a general discussion of the relevant tax laws. It was not intended for nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. This information is provided to support the promotion or marketing of ideas that may benefit a taxpayer. Taxpayers should seek the advice of their own tax and legal advisors regarding any tax and legal issues applicable to the specific fact pattern.

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