This is an easy one. CVAT stands for Cash Value Accumulation Test and GPT stands for Guideline Premium Test. Next Question?
Ok, so maybe a little more information would be useful…
CVAT and GPT are the two tests that the Internal Revenue Code utilizes to determine the tax favorability of Life Insurance contracts. It is important to note that the specific test a policy will adhere to must be chosen at inception and cannot be changed once the policy is placed in force.
The Guideline Premium Test must meet two requirements. The first is a limitation on the cumulative premium and the second is on the Cash Value as it is relative to the Death Benefit and the insured’s attained age.
The Cash Value Accumulation Test requires only that the account value not exceed a specified percentage of the death benefit. It does not technically limit the amount of premiums to be paid, however, excessive premiums could still create a Modified Endowment Contract.
Some general rules of thumb:
Policies adhering to CVAT tend to perform better for clients looking to access Cash Value in early years or pay lump/limited sum premiums.
Policies adhering to GPT tend to perform better for clients looking to build cash value over a longer period.
There are of course exceptions to every rule which we consider on a case by case basis.