Life insurance does not only provide security or financial support to a family, it also has tax advantages that are available because of the investment in this type of insurance policy. In general, there are two basic tax benefits that one can get from life insurance – policy proceeds and whole life policies.
In most cases, policy proceeds such as death benefits are being paid out to beneficiaries without tax. On the other hand, whole life policies could accumulate annual earnings, tax-free, provided that the earnings are distributed equally among the policyholder or the beneficiaries.
Interest rates that are being paid by life insurance policies have been significantly competitive with some other forms of investments. This, plus the tax advantage, makes life insurance policy an appealing option for people who are looking for prudent ways to accumulate cash and provide the protection benefits that life insurance mainly offers. However, as an effort to control the use of life insurance as a vehicle for substantial money growth, the IRS implemented a set of standards on all types of life insurance policies that must be met; this will be categorized as life insurance that is eligible for tax advantage.
Life insurance policies must meet the requirements of one of these tests – The Cash Value Accumulation Test, Guideline Premium Test and Corridor Test.
The Cash Value Accumulation Test
In this qualification, cash surrender value of life insurance should not be more than the net single premium required to buy the same future benefits. For example, a 40-year old man has a whole life policy amounting to $150,000 that has a cash value of $15,000. 
To qualify for the Cash Value Accumulation Test, given the mentioned amount of coverage and the age of the policyholder as an example, the net single premium should be at least $15,000. If it’s less than $15,000, then the policy will not be considered as life insurance so the tax advantage will be forfeited.
The Guideline Premium Test and Corridor Test
These are two different tests. The Corridor Test is focused in evaluating the relationship of a life insurance policy’s death benefits to its cash value. To meet the requirement for this type of test, the rule for this is that cash value must not be more than the required percentage of the total death benefit of the policy.
On the other hand, the Guideline Premium Test takes into consideration the amount paid for premiums. To be eligible under this test, the total amount of premiums paid must not be more than the required total single premium to buy life insurance policy’s benefits or the guideline level premiums’ total.