Page:United States Statutes at Large Volume 100 Part 3.djvu/1039

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2847

"(i) has an initial death benefit of $5,000 or less and a maximum death benefit of $25,000 or less, "(ii) provides for a fixed predetermined annual increase not to exceed 10 percent of the initial death benefit or 8 percent of the death benefit at the end of the preceding year, and "(iii) was purchased to cover payment of burial expenses or in connection with prearranged funeral expenses. For purposes of subparagraph (C), the initial death benefit of a contract shall be determined by treating all contracts issued to the same contract owner as 1 contract." (b) CLARIFICATION OF SECTION 7702(f)(7).— (1) Paragraph (7) of section 7702(f) (relating to adjustments) is amended to read as follows: "(7) ADJUSTMENTS.—

"(A) IN GENERAL.—If there is a change in the benefits under (or in other terms of) the contract which was not reflected in any previous determination or adjustment made under this section, there shall be proper adjustments in future determinations made under this section. "(B) RULE FOR CERTAIN CHANGES DURING FIRST 15 YEARS.—

If— "(i) a change described in subparagraph (A) reduces benefits under the contract, "(ii) the change occurs during the 15-year period beginning on the issue date of the contract, and "(iii) a cash distribution is made to the policyholder as a result of such change, section 72 (other than subsection (e)(5) thereof) shall apply to such cash distribution to the extent it does not exceed the recapture ceiling determined under subparagraph (C) or (D) (whichever applies). "(C) RECAPTURE CEILING WHERE CHANGE OCCURS DURING


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FIRST 5 YEARS.—If the change referred to in subparagraph (B)(ii) occurs during the 5-year period beginning on the issue date of the contract, the recapture ceiling is— "(i) in the case of a contract to which subsection (a)(1) applies, the excess of— "(I) the cash surrender value of the contract, immediately before the reduction, over "(II) the net single premium (determined under subsection (b)), immediately after the reduction, or "(ii) in the case of a contract to which subsection (a)(2) applies, the greater of— '(I) the excess of the aggregate premiums paid under the contract, immediately before the reduction, over the guideline premium limitation for the contract (determined under subsection (c)(2), taking into account the adjustment described in subparagraph (A)), or "(II) the excess of the cash surrender value of the contract, immediately before the reduction, over the cash value corridor of subsection (d) (determined immediately after the reduction). "(D)

RECAPTURE CEIUNG WHERE CHANGE OCCURS AFTER

5TH YEAR AND BEFORE 16TH YEAR.—If the change referred to

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