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General Account: All the assets of a life insurance company other than those held in separate accounts. Separate accounts, or sub-accounts, are typically used for variable products, which pass actual investment experience including all capital gains and losses through to policy cash values. The assets backing all other products are held in the general account. The general account may be “segmented” to allocate certain investments to certain blocks of business for the purpose of setting current crediting rates. However, whether or not the general account is segmented, all general account assets are available when any line of business needs additional cash to pay current benefits. Thus, the safety of any general account product depends on the financial strength of all the company’s product lines.
Guideline Premium Test: The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 provided a statutory definition of life insurance for flexible premium (i.e., Universal Life) products that limited the amount of premium per dollar of death benefit and required at least a minimum amount of pure risk coverage in order to be treated as life insurance for income tax purposes under IRC Sec. 101 (i.e., tax-free death benefits). TEFRA was subsequently modified by the Deficit Reduction Act (DEFRA) of 1984 to expand these general set of qualifications to apply all policy contracts and included mathematical calculations for ongoing testing. Together IRC Sec. 7702(a) provides that, for a contract to qualify as a life insurance contract for Federal income tax purposes, the contract must be a life insurance contract under the applicable law and must either (1) satisfy the cash value accumulation test of § 7702(b), or (2) both meet the guideline premium requirements of § 7702(c) and fall within the cash value corridor of § 7702(d). A contract meets the guideline premium requirements of § 7702(c) if the sum of the premiums paid under the contract does not at any time exceed the guideline premium limitation as of that time. The guideline premium limitation as of any date is the greater of (A) the guideline single premium, or (B) the sum of the guideline level premiums to that date. The Guideline Single Premium (GSP) is the premium that would be required on the date the contract is issued to fund the future benefits under the contract, based on the following three elements enumerated in section 7702(c)(3)(B): (i) reasonable mortality charges that meet the requirements (if any) prescribed in regulations and that (except as provided in regulations) do not exceed the mortality charges specified in the prevailing commissioners' standard tables (as defined in section 807(d)(5)) as of the time the contract is issued; (ii) any reasonable charges (other than mortality charges) that (on the basis of the company's experience, if any, with respect to similar contracts) are reasonably expected to be actually paid; and (iii) interest at the greater of an annual effective rate of six percent or the rate or rates guaranteed on issuance of the contract. The Guideline Level Premium (GLP) is the level annual amount (calculated as described in the definition of Initial Guideline Single Premium above), payable over a period not ending before the insured attains age 95, computed on the same basis but using a minimum interest rate of four percent, rather than six percent.