Glossary

Corridor (death benefit corridor)

The minimum gap the tax code requires between a universal life policy's death benefit and its cash value to keep the policy's tax advantages.

Also called: death benefit corridor, cash value corridor, corridor test

The corridor is the required margin between a life insurance policy's death benefit and its cash value under Internal Revenue Code Section 7702. A contract must stay insurance-like, not mostly savings, to qualify for a tax-free death benefit and tax-deferred growth. Policies that use the guideline premium test must also pass the cash value corridor test, which requires the death benefit to be at least a set percentage of the cash surrender value based on the insured's attained age.

The required percentage is 250% through age 40 and steps down on a sliding scale to 100% at age 95. Hypothetical example: a 60-year-old's universal life policy has $500,000 of cash value. The applicable percentage at 60 is 130%, so the death benefit must be at least $650,000. If strong growth pushes the cash value higher, the insurer automatically raises the death benefit to stay in the corridor.

Corridor increases can surprise owners of heavily funded policies, especially level death benefit (option A) contracts, because cost-of-insurance charges rise with the extra amount at risk. The corridor is separate from the seven-pay test that decides whether a policy becomes a modified endowment contract. See section 7702, Universal life death benefit options A and B and modified endowment contracts and the 7-pay test.

Last reviewed October 4, 2026

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Related terms

Section 7702 The federal tax code section that defines which contracts count as life insurance, limiting how much cash value a policy can hold for its death benefit. Cash value The savings component that builds inside whole life, universal life and other permanent policies, which the owner can borrow against or withdraw. Net amount at risk The part of a death benefit the insurer would pay from its own funds: the total death benefit minus the policy's cash value or reserve. Universal life insurance Permanent life insurance with flexible premiums and an adjustable death benefit, built on an account credited with interest and charged monthly costs. Overfunding a policy Paying more into a permanent policy than its coverage requires to build cash value faster, while staying under federal limits that protect its tax benefits. Level death benefit (option A) A universal life setting in which beneficiaries receive a fixed specified amount; cash value growth lowers the insurer's risk instead of adding to the payout.

Related guides

Modified endowment contracts and the 7-pay test A policy funded too fast becomes a MEC under IRC §7702A: loans and withdrawals are taxed gain-first, with a possible 10% penalty. How the 7-pay test works. Overloan protection riders: how they prevent a taxable lapse An overloan protection rider keeps a heavily borrowed policy from lapsing into a tax bill. How it works, section 7702 limits, conditions and trade-offs. Universal life death benefit options A and B Option A pays a level death benefit; option B pays the face amount plus the account value. How each affects cost, cash value and what your family receives.