Guideline Premium and Corridor Test GPT
Definition of 'Guideline Premium and Corridor Test GPT'
The GPT has two parts:
Guideline premium: The sum of all premiums paid into the contract may not exceed the greater of the two parts: 1) guideline single premium; and 2) guideline level annual premium.
Corridor: The difference between a policy's death benefit and its cash value must be at least the greater of the two parts: 1) corridor amount; and 2) corridor percentage.
If a policy fails either part of the GPT, it will not qualify as life insurance for tax purposes. This means that the policyholder will be taxed on the investment returns earned on the policy's cash value, just like they would be taxed on the investment returns earned on any other investment.
The GPT is a complex test, and there are a number of factors that can affect whether a policy will pass the test. If you are considering purchasing a life insurance policy, it is important to consult with a financial advisor to determine whether the policy is likely to pass the GPT.
Here are some of the factors that can affect whether a policy will pass the GPT:
The age of the insured person.
The amount of the death benefit.
The premium payments.
The cash value accumulation rate.
The corridor amount and percentage.
The GPT is a tool for policyholders and financial advisors. It helps to ensure that life insurance policies are primarily designed to provide death benefits, not investment returns. This is important because it helps to protect policyholders from unexpected tax consequences.
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