Annuity glossary

7-Pay Test

The IRS test that decides whether a life insurance policy becomes a modified endowment contract. It sets a maximum total premium you can pay during the policy's first seven years; pay in more than that limit and the policy permanently loses the favorable first-in, first-out tax treatment on lifetime withdrawals and loans. Policy documents explain the timing, charges, limits, and conditions that apply to the owner.

Any guarantee is backed by the claims-paying ability of the issuing insurer.